Finally the news we’ve been all waiting for.  That is Variable Rate Mortgage Holders, anyone with a HELOC or perhaps any other source of debt that is tied to the Bank of Canada Prime Rate.  Today, marks the first decrease since the Bank of Canada steadily increased the rate over the last several years.

They have acknowledged that the economy doesn’t need such a high interest rate any longer.  They will continue to proceed cautiously however as they want to ensure that the inflationary pressures don’t rebound like they have in the US in recent months.  As we know our inflation rate has been on a steadily decline over the last several months, reaching 2.7% in April.

While economists aren’t necessarily on the same page as to when the next cut will be, perhaps July 24th or perhaps September 4th fingers are crossed that we’ll see more rate cuts in the coming 12 months.

If you’re wondering how it might affect your own mortgage, check out the simple grid below.  You can also download my Mortgage Calculator and run some potential scenarios.

If you’re wondering why the turn of events, below is the Bank’s rationale for this move.

Canadian inflation

• Inflation measured by the Consumer Price Index (CPI) eased further in April to 2.7%
• The Bank’s preferred measures of core inflation also slowed and three-month indicators suggest continued downward momentum
• Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average, however, shelter price inflation remains high

Canadian economic performance and housing

• Economic growth resumed in the first quarter of 2024 after stalling in the second half of last year
• At 1.7%, first-quarter GDP growth was slower than the Bank previously forecast with weaker inventory investment dampening activity
• Consumption growth was solid at about 3%, and business investment and housing activity also increased
• Labour market data show Canadian businesses continue to hire, although employment has been growing at a slower pace than the working-age population
• Wage pressures remain but look to be moderating gradually
• Overall, recent data suggest the economy is still operating in excess supply

Global economic performance and bond yields

• The global economy grew by about 3% in the first quarter of 2024, broadly in line with the Bank’s April Monetary Policy Report projection
• The U.S. economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity
• In the euro area, activity picked up in the first quarter of 2024 while China’s economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak
• Inflation in most advanced economies continues to ease, although progress towards price stability is “bumpy” and is proceeding at different speeds across regions
• Oil prices have averaged close to the Bank’s assumptions, and financial conditions are little changed since April

Please note, this doe NOT affect your Fixed Rate mortgages which are tied to the Canada Bond Market.  If we’ve pre-approved you with fixed rates, this doesn’t affect your pre-approval purchase price amounts.  However it is important to note that in reviewing the Canada 5 Year Government Bond over the last 5 days it has trended downwards…so there MAY be decreases in fixed rates as well.

I know….it’s confusing….so if you have questions and want to chat about your situation, feel free to book a Strategy Call.