Bank of Canada (BOC) Interest Rate Drops By 25 Basis Points To 4.75%

The much awaited news for mortgage borrowers is here. The Bank of Canada lowered interest rates by 25 basis points to 4.75%. The Bank of Canada’s policy rate, also known as a benchmark rate or overnight rate influences a bank’s prime rate, which impacts interest rates paid on mortgage products.

The rate drop is good news for buyers and sellers, but it isn’t a game changer. The cut will bring in more reductions in 2024 and 2025. The lower borrowing rate is a good news for Canadian homeowners and prospective buyers. 

Whether you’re seeking to buy your first home, plan to renew this year, or have a variable rate mortgage, the current interest rate situation is important.

Rate Cut Brings Positive Impact For First-time Homebuyers

In order to keep inflation under control, the Bank of Canada has rapidly raised its policy rate from 0.25% in March 2022 to 5% by July 2023. This increase resulted in higher mortgage rates, which had a financial impact on many homeowners. Higher interest rates impacted affordability and mortgage possibilities, keeping many people on the sidelines.

With the latest interest rate announcement, the decline is undoubtedly a good indication for new home buyers, who will begin to see mortgage rates fall as a result. While 25 basis points may not materially change the game for home buyers, the fall is largely thought to be the start of a trend of lowering rates.

How Fast & Far Are Further BOC Rate Cuts?

The Bank of Canada finally pulled the trigger, lowering the policy rate by 25 basis points. Forecasters were split on whether to cut in June or July, but the facts were just too strong in favor of a cut – or, to put it another way, too weak, given the recent GDP estimates.

This signifies the start of an easing cycle in policy rates. Most journalists, investors, and consumers are now asking, “How far and how fast?”

The bank lowered its policy rate from 5% to 4.75%. Despite the drop, there is a strong case that monetary policy is more restrictive than it was at the Bank of Canada’s previous announcement on April 10.

The BOC’s monetary policy is more restrictive because what matters is the real policy rate, which is the nominal policy rate minus inflation, not the nominal policy rate of 4.75 percent.

What’s Expected Next In Monetary Policy?

  • Statistics Canada will release May inflation figures on June 25. It will release the May Labour Force Survey results on Friday, June 7, and the April GDP figures on June 28.
  • The Bank of Canada’s next interest rate announcement is scheduled for July 24, when it will also release updated economic estimates in its quarterly Monetary Policy Report. The following decision will be made on September 4.

For more details on rate cut and how it’s going to impact your mortgage payments, feel free to contact Satbir Bhullar, award winning mortgage broker in Abbotsford and Surrey.