In a much anticipated announcement, the Bank of Canada has reduced the current policy rate by 0.25% for the first time since the tightening cycle began on March 2, 2022 (the first cut since March 2020). As such, Prime Rate will now be 6.95%. 

Direct impact to this announcement will be felt by mortgage holders with variable or adjustable rate mortgages and by those who have secured or unsecured lines of credit that are priced against the prime rate. This rate cut does not have a direct correlation to fixed mortgage rates as fixed rates are priced against the bond market. If you are unsure if you are impacted by this announcement, please reach out!

The Bank of Canada had noted time and time again that in order to start exploring a cutting cycle, the core inflation (amongst other measures) would need to show stability within a 1-3% band, likely around their 2% target. Well, after 26 months of rate tightening, we saw inflation plunge to 2.7% in April, down from 3.0% previously, and as such our first rate cut in over four years on June 5th, 2024.

While inflation is still not at the 2% target the Bank of Canada would like to see, they noted in their press release HERE, that there are four indicators that are increasingly pointing to sustained easing:

CPI inflation has eased from 3.4% in December to 2.7% in April (there have been 8 straight months of CPI deceleration)

our preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April

the 3-month rates of core inflation slowed from about 3.5% in December to under 2% in March and April

the proportion of CPI components increasing faster than 3% is now close to its historical average, suggesting price increases are no longer unusually broad-based

In broad terms, this means the last 26 months of rate tightening and restrictive monetary policy is working to relieve price pressures. The Bank of Canada also noted "monetary policy no longer needs to be as restrictive...it is appropriate to lower our policy interest rate".

This is welcome news to many (if not all) Canadians who have been doing their best to stay above water while the cost of living has grown across most of the country. While there is still much work to be done to return to more day-to-day stability, this is certainly a moment where a collective sigh of relief can be made. 

Information note

We understand that there may still be many questions and concerns amongst out clients and partners. If you're feeling stretched by monthly payments, are anxious about an upcoming renewal, or just want to chat, please reach out so we can talk. We will keep you updated as we received more information about today's announcement. The next announcement is scheduled to take place on July 24th, 2024. The Bank will also publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on July 24, 2024.