The Bank of Canada (BOC) cuts key interest rate to 4.75%, and it is the first rate cut since March 2020. Here are the key points from today’s much-awaited announcement, plus what they mean for homeowners and buyers.
This post was first published in January 2025. It covers the Bank of Canada’s June 2024 rate announcement, and the figures below are from that time.
Why the BOC Cuts Key Interest Rate Now
The main reason is inflation. It has moved closer to the BOC’s 2% target and now sits at 2.7%. Core measures of inflation also eased through the spring. At the same time, recent growth was weaker than expected. GDP grew at 1.7% in the first quarter of 2024.
Put simply, prices are rising more slowly, and the economy has lost some speed. So the Bank no longer needs rates as high as before. A rate cut like this aims to ease pressure on households without letting inflation flare up again.
The Economic Context
The BOC’s previous cycle involved aggressive rate hikes. The last hike, to 5%, came in July 2023. This June decision reverses course, as the Bank cuts key interest rates for the first time in this cycle.
Major Canadian banks moved quickly. RBC, Scotiabank, BMO, TD Bank and CIBC all reduced their prime lending rates to 6.95%. Prime drives the cost of variable-rate mortgages and lines of credit, so the change reaches borrowers fast.
What Governor Macklem Said
Governor Tiff Macklem stressed that monetary policy no longer needs to be as restrictive. He also said confidence in reaching the 2% inflation target has grown. Still, he was careful. The BOC plans to take decisions “one meeting at a time,” so it does not put progress against inflation at risk.
In other words, even after the Bank cuts key interest rates once, the next step is not automatic. You can read the Bank’s full statements on the Bank of Canada website.
What Economists Expect When the BOC Cuts Key Interest Rate
Experts noted that the BOC is the first G7 central bank to cut rates. Economists expect a gradual cycle of cuts, so the economy does not tip into a recession. CIBC, for example, anticipates more cuts, with a possible 25-basis-point reduction in July 2024. The move signals the start of a gradual and orderly cycle, expected to unfold over the next year and a half. Its aim is to fend off a possible recession and help the economy recover.
Meanwhile, the U.S. Federal Reserve has held its rate, with no immediate plans to cut. The BOC’s decision may influence other central banks and economic strategies around the world.
What It Means for Homeowners and Buyers
The rate cut helps variable-rate mortgage holders, whose payments rose a great deal during the hikes.
For home buyers, a lower rate can mean a slightly larger budget or a smaller monthly payment. After a rate cut, buyers often return to the market, and sellers may see more showings. Still, one cut does not change everything overnight. Lenders still apply the mortgage stress test, and prices depend on local supply and demand.
Here in Mississauga, every neighbourhood moves at its own pace. A condo near the city centre and a detached home in Meadowvale can behave very differently after a rate change. So look at local sales, not just national headlines.
If you have a variable-rate mortgage, ask your lender how the change affects your payment. If your term renews soon, start comparing offers early. And if you plan to buy, get a pre-approval so you know your budget. For the next step in this cycle, read my post on the second cut to 4.50%. You may also like my earlier look at how rate cuts could affect home prices.
When the BOC cuts key interest rates like this, it reflects a strategic shift to balance control of inflation with support for growth. As the economy responds, Canadians can expect further developments in the coming months.
Talk to a Mississauga Real Estate Agent
Do you have questions about interest rates, mortgages or buying a home in Mississauga, or about buying or selling a home in Mississauga? I am always glad to help. You can send me a message here or call me at 416 908 5600. If this post helped you, a Google review is always welcome. A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage
Disclaimer: this article was published on 17 January 2025 and reflects the information available at that time. Interest rates, prices, and government programs change, so check the current position before acting on anything here. It is provided for information only and is not financial, mortgage, tax or legal advice. A. Q. Mufti is a registered Sales Representative with RE/MAX Real Estate Centre Inc., Brokerage, Ontario, Canada.
