On Wednesday, September 4th 2024, the Bank of Canada updated its monetary policy by cutting its policy interest rate by another ¼ percent (25 basis points). This is the third consecutive interest rate announcement that includes a ¼ percent rate reduction.
The target for the overnight rate has been lowered to 4.25 percent from its peak of 5 percent. The peak reached in July 2023 was sustained for nearly one year and has contributed to the lowering of inflation to 2.5%.
The opening statement at the press conference announcing the rate cut included:
Inflation continues to reflect the push and pull of opposing forces. Overall weakness in the economy continues to pull inflation down. But price pressures in shelter and some other services are holding inflation up. Since the July Monetary Policy Report, the upward forces coming from prices for shelter and some other services have eased slightly.
Comments at the press conference suggest that additional cuts may occur should inflation, slack in the economy and economic risks continue on their existing trajectories.
Every ¼ percent rate cut, causes mortgage payments to fall by about $15 per month for every $100,000 borrowed depending upon amortization period and payment frequency. The rate cuts to-date will save mortgagors approximately $225 each month on a $500,000 mortgage compared to the peak level of the last year.
The next opportunities for the Bank of Canada to adjust interest rates further are October 23rd and December 11th.
The U.S. Federal Reserve is scheduled to release its next monetary policy and interest rate update on Wednesday, September 18th. CME Group predicts that rates in the U.S. will drop for the first time since peaking, and by as much as ½ percent.
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