Bank of Canada expected to lower interest rates on Wednesday

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Posted By: jasabacklink June 4, 2024

The Bank of Canada (BoC) will announce its decision on interest rates on Wednesday, and some are speculating (hoping) that the BoC will deliver its first rate cut in four years.

“Because of sky-high interest rates, too many Ontario families are struggling to make their monthly mortgage payments. They’re worried about how they’re going to afford to renew as they face the risk of thousands of dollars more each month,” Ontario Premier Doug Ford stated on X on Tuesday morning. “Tomorrow, the Bank of Canada has another chance to finally give them some overdue relief by cutting interest rates. Inflation is down. It’s well past time for interest rates to come down, too.”

The BoC began raising interest rates in March 2022 in response to rising inflation. The main tool the BoC uses to control inflation is the policy interest rate—a higher rate helps decrease inflation and a lower one helps it rise.  Still, high interest rates mean that it costs Canadians more to borrow money—meaning more is spent on mortgages, lines of credit, or other loans with variable interest rates.

Canada went through seven interest rate hikes in 2022 with subsequent increases in January, June, and July 2023, when the BoC raised the key rate to 5%.  The bank has held the rate at 5% in the last four rounds of announcements.

Given the latest downward trend on inflation and economic growth, some experts are optimistic that a rate cut is much more likely.

“We are seeing a generalized cooling down in the economy that has been persistent over a nine-month period, signalling that the efforts by the Bank of Canada have been successful. The fact that growth is now lower than expected, makes it more likely that the Bank of Canada will decide to ease on their position and start lowering the rate and seeing how the market reacts,” Cristián Bravo, an associate professor in statistical and actuarial sciences and is the Canada Research Chair in Banking and Insurance Analytics at Western, said in an interview.

Some economists don’t think a rate cut will happen just yet—they believe it’s more likely that the BoC will keep its overnight lending rate at 5% (the rate it has held since July 2023) because it’s likely waiting for inflation to cool more.

“Even though we expect the current rate to be maintained, we are anticipating accompanying communication from the BoC that a rate cut will be coming soon,” TD Economist James Orlando told TD Stories in late May. “We’re looking for some signal from the BoC to help bolster confidence that a lower rate could be coming in July.”

In January, CIBC economist Benjamin Tal told Streets of Toronto what we can expect from Toronto’s housing market this year.

“…By the second half of the year, we’ll start to see very clear signs that the market is starting to recover. There’s a lot of pent up demand in the market. Interest rates will start to fall. I think people will see the light by spring of 2024,” he said in January. “Today, the overnight rate is 5 per cent, so by the end of 2024, it will likely be at 3.5 per cent.”