Bank of Canada (BoC) drops their rate by 0.5%, ‘to support economic growth’. Consumption has continued to grow but is declining on a per person basis. The labour market remains soft. Population growth has continued to expand the labour force while hiring has been modest. Wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply. Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations. Inflation in shelter costs remains elevated but has begun to ease. Business and consumer inflation expectations have largely normalized.
BoC seems to have turned the corner and now projects a gradually strengthening economy, supported by lower interest rates, with any upward and downward pressures on inflation roughly balancing out. While their language hints at additional reductions, they’re intentionally vague about the specific timeline. “If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further. However, the timing and pace of further reductions in the policy rate will be guided by incoming information . We will take decisions one meeting at a time. ”
It will be interesting to see how this affects real estate, along with the recent changes in mortgage rules, particularly for first time home buyers. BoC itself admits in today’s statement, “strong demand for housing to lift sales”. This could potentially lead to a return to a more competitive housing market, as the new mortgage affordability calculations may bring homeownership within reach for a cohort of buyers who have been waiting on the sidelines.
Next BoC meetings Dec 11 followed by Jan 29. US Fed will make their next rate announcement Nov 7, 2024, shortly after the US election.