Another Bank of Canada Update Slashes Interest Rates. What’s Next?

The Bank of Canada (BoC) has once again slashed interest rates, a move that has everyone from homeowners to business owners wondering what’s next. In July 2024, BoC slashed its overnight rate to 4.5%, a 0.25 reduction from 4.75%. This decision has sparked a lot of debate, with opinions divided on whether it’s a step in the right direction or a sign of deeper economic troubles.

With this drop, banks are already noticing more and more homebuyers choosing variable rate mortgages. The next update is scheduled for September 4. 

But lower rates are good for homebuyers and homeowners… 

Homeowners with variable-rate mortgages will likely see a decrease in their monthly payments, a much-needed relief. This move can also stimulate economic growth by encouraging businesses to invest more, given that borrowing costs are lower. For those considering a big purchase, like a home or a car, the lower interest rates could make financing more attractive.

A lower interest rate can weaken the Canadian dollar and make way for more exports. It makes Canadian goods become more attractive to foreign buyers, especially in the manufacturing and natural resources category. 

Are There Any Downsides of Lower Rates? 

Lower interest rates lower returns on savings accounts and fixed-income investments, like bonds. Moreover, there is a risk that lower rates could fuel an already overheated housing market. With borrowing costs even more affordable, more people might rush to buy homes. We’ve seen it happen before during the pandemic. 

There’s also the issue of long-term economic stability. If rates stay low for too long, it might signal that the economy is in worse shape than it appears. Investors might lose confidence, and the stock market could see increased volatility as a result.

What Could Happen Next?

BoC may continue to cut rates if economic conditions don’t improve. These rate cuts stimulate growth but can only do so much until the underlying issues are handled. Global economic uncertainty, trade tensions, and a sluggish domestic economy are just some of the issues. 

This latest rate cut is part of a complex economic puzzle that will continue to evolve in the coming months. Whether you’re a borrower, saver, or investor, staying informed and adaptable with major buying decisions. For now, the central bank seems committed to the current course, which means you can expect a few more rate cuts in the future. 

If you want to find out how much mortgage you can afford, reach out to Leo Ragusa at The Mortgage Professionals for a detailed evaluation.