Analysts suggest that Bank of Canada rate cut offers borrowers hope, but may not provide immediate relief.
Despite the Bank of Canada’s interest rate cut on June 6, homeowners may not see a significant reduction in mortgage costs. However, with the next central bank rate decision scheduled for July, economists and analysts suggest that borrowers may not have to wait long for some relief.
The Bank of Canada announced on June 5 that it would lower its key interest rate by a quarter of a percentage point to 4.75 percent from 5 percent, raising hopes among homeowners, small businesses, and other borrowers.
This rate adjustment marks the first change since July 2023 when the rate was raised to 5 percent, ending a series of increases from historic lows.
Economists caution that borrowers should not expect an immediate impact. Current rates are still significantly higher than the low of 0.25 percent in 2020, and those anticipating a quick return to cheaper loans may be disappointed.
Although the rate cut may not have an immediate effect on mortgage costs, the Royal Bank of Canada indicates that the start of a downward trend could boost confidence in the economy and motivate new buyers.
The bank advises that individuals renewing fixed-term mortgages may still experience higher rates compared to the levels in 2020 when the central bank’s policy rate was at 0.25 percent. However, those with variable-rate mortgages may see relief sooner.
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The Bank of Canada Governor, Tiff Macklem, indicated a positive outlook for further rate cuts, but noted that key economic indicators such as wage growth, inflation, and corporate pricing behavior would guide future decisions.
Canada’s inflation rate has decreased to 2.7 percent in April from 3.4 percent in December. If this trend continues, there may be further cuts to the policy interest rate, according to Mr. Macklem.
TD Bank forecasts additional rate cuts in the near future, with plans for multiple reductions in 2024 and beyond.
As eyes turn to the Bank of Canada’s upcoming interest rate announcement on July 24, borrowers and homeowners eagerly await potential relief from high borrowing costs.
