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Valueland's Blog Articles

What to Expect When the BoC Reduces Interest Rates

Q4 2023 Economic Snapshot: A Ray of Hope

In the final quarter of 2023, the Canadian economy exhibited resilience, recording a 1% expansion on an annualized basis. This positive trajectory followed a contraction in Q3 2023, marking a noteworthy recovery.

Anticipating Interest Rate Cuts: A Closer Look

Expectations are brewing that an interest rate cut could materialize in either April (April 10) or June (June 5). This potential move has captured the attention of many, especially considering that 56% of Canada's adult population has delayed their property search due to higher interest rates.

The Sidelined Homebuyers Dilemma: A Recap

A recent Royal LePage survey echoes this sentiment, revealing that 56% of Canadians have put their property search on hold due to rising interest rates. Interestingly, 51% of them express a willingness to re-enter the market if interest rates reverse.

The Timing Conundrum: June Emerges as a Frontrunner

While the Bank of Canada announced rate remains unchanged decision on March 6, economists lean towards June for the first rate cut

Challenges for Homeowners in the Wake of Higher Rates

The central bank's research estimates that nearly 80% of borrowers renewing a mortgage may face significantly higher payments by the end of this year. A survey reveals that homeowners are feeling the strain, with almost 70% finding it more challenging to pay their mortgages since the rate hikes began in March 2022.

Choosing Stability in a Dynamic Market

As speculations about rate cuts loom, borrowers are expressing a preference for stability. Almost 30% plan to refinance their mortgages, with fixed-rate mortgages remaining the preferred choice. Homebuyers, when re-entering the market, show a similar inclination, with 44% aiming for a four-year or five-year fixed-rate mortgage.

When Will the BoC Reduce Interest Rates?

Inflation Surprises to the Downside: A Closer Look at January 2024

In January 2024, Canada experienced an unexpected slowdown in its inflation rate, dropping to 2.9%. This marked a significant contrast from the 3.4% gain in December 2023 and the first time since June 2023 that the rate fell within the Bank of Canada's target range of 1–3%. The primary driver behind this deceleration was a year-over-year decline in gasoline prices.

However, the employment front tells a different story. Canada added a robust 37,000 jobs in January, signaling positive momentum in the job market. This was a considerable jump from the mere 100 jobs added in December 2023.

The Conundrum: Interpreting Economic Signals

This leads us to the burning questions: What does this mean for mortgages in Canada? Will there be an interest rate reduction in April, or are we looking at June? How does the significant rise in U.S. inflation impact the Bank of Canada's decision-making process? Reading the Bank of Canada's "tea leaves" has become a challenge, given its monitoring of six indexes to gauge price pressures.

Core inflation measures play a crucial role in guiding economists, aiming to provide a stable outlook amidst volatile goods' month-to-month changes, such as food and energy. Governor Tiff Macklem emphasizes the concept of core inflation, emphasizing the need for a comprehensive view.

Insights from Financial Experts: A Shift in Predictions

Economists who initially predicted a Bank of Canada rate cut in April are now reconsidering their forecasts, pushing the expected timeline to June. The employment data, while seemingly robust, raises concerns for the Bank of Canada. Factors such as the unemployment rate falling to 5.7% in January, coupled with strong hourly wage growth, make policymakers wary.

As a result, there's a shift in market dynamics. The likelihood of a April rate cut has fallen below 30%, emphasizing the absence of obvious signs of stress in the economy.