Bank of Canada’s Rate Cuts: More to Come?
The Bank of Canada recently lowered its benchmark rate by 25 basis points, the first cut in over four years, bringing the trendsetting rate down to 4.75%. This move has left the door wide open for further cuts, potentially as soon as July, according to Doug Porter, Chief Economist at BMO. While this could signify a gradual decrease in rates over the coming months, it’s important to temper expectations. The central bank’s approach appears to be cautious, and any significant rate drops may take time to materialize.
Impact of US Federal Reserve on Canadian Rates
The US Federal Reserve’s cautious stance on rate cuts is expected to influence Canadian fixed mortgage rates in the short-to-medium term. With the Fed planning just one rate cut for the remainder of the year, Canadian borrowers with upcoming fixed-rate mortgage renewals might not see a dramatic drop in rates. Financial advisor Justin Prasad emphasizes that while variable rates might gradually decrease, fixed-rate options might still be preferable for many borrowers in the current economic climate.
Fixed vs. Variable Mortgages: Borrower Preferences
Following the Bank of Canada’s recent rate cut, variable rates have seen a slight decrease. However, the appeal of variable-rate mortgages remains limited due to the minimal discounts available. Fixed-term options, continue to be popular as they offer stability amidst economic uncertainty. Borrowers should consider their individual financial situations and consult with their lenders to determine the best mortgage type for their needs.
Inflation’s Unexpected Rise and Its Implications
Recent data from Statistics Canada revealed an unexpected increase in the annual inflation rate for May, reaching 2.9%. This uptick has cast some doubt on the likelihood of a July rate cut. However, BMO’s Doug Porter suggests that a rate cut remains a possibility, depending on upcoming inflation readings. The Bank of Canada’s cautious stance means homeowners should prepare for a potentially unpredictable second half of the year.
Challenges Ahead for Mortgage Renewals
Deloitte Canada’s latest economic outlook predicts further rate cuts in 2025, but many homeowners will still face challenges with upcoming mortgage renewals. While rate cuts are expected to provide some relief, the impact of higher rates during the pandemic continues to affect many households. Deloitte forecasts a gradual decline in rates, with the Bank of Canada’s benchmark rate expected to drop to 2.75% by the end of next year.
Residential Market Commentary: July Rate Cut Unlikely
Recent economic reports, including a rise in headline inflation to 2.9% and a 0.3% GDP growth in April, suggest that another rate cut by the Bank of Canada in July is unlikely. Most analysts now anticipate the next rate cut to occur in September. Homeowners and potential buyers should stay informed and be prepared for continued economic fluctuations.