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Bank of Canada Reduces Policy Rate by 25 Basis Points

Key Highlights from Bank of Canada’s June 5th Announcement:

  1. Interest Rate Cut: The Bank of Canada has reduced its key overnight rate by 25 basis points to 4.75%, marking the first rate cut in four years. This decision comes after maintaining a 5% rate since July 2023. The cut aligns with market expectations and signals the beginning of a shift towards more normal interest rate levels.
  2. Monetary Policy Shift: This move indicates the central bank’s easing stance after a prolonged period of battling inflation. Although the policy remains restrictive, it represents a step towards lessening the financial burden on borrowers.
  3. Lower Inflation: Persistently lower inflation over the past year has enabled this rate cut. The Bank of Canada’s core CPI measures, including CPI trim, CPI median, and “supercore,” have shown significant easing, averaging 1.85% on a three-month annualized basis as of April 2024.
  4. Labour Market Conditions: The BoC highlighted softening labour market conditions, with employment growth lagging behind the working-age population, and wage pressures moderating gradually.
  5. Future Rate Cuts: The Bank of Canada forecasts continued easing of price pressures and expects headline CPI to reach the 2% target by 2025. While no specific pace for future rate cuts was provided, it is anticipated that there will be three more rate cuts this year, potentially bringing the overnight rate to 4% by the end of 2024.

The next scheduled date for announcing the overnight rate target is July 24, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time.

We’d welcome an opportunity to discuss the perspectives presented in this Bank of Canada Reduces Policy Rate by 25 Basis Points. Please contact our team today at (416)925-3140 or (613)366-8525 or by e-mail.

Bank of Canada Maintains Policy Rate — Continues Quantitative Tightening

The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening.

The global economy continues to slow and inflation has eased further. In the United States, growth has been stronger than expected, led by robust consumer spending, but is likely to weaken in the months ahead as past policy rate increases work their way through the economy. Growth in the euro area has weakened and, combined with lower energy prices, this has reduced inflationary pressures. Oil prices are about $10-per-barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have also eased, with long-term interest rates unwinding some of the sharp increases seen earlier in the autumn. The US dollar has weakened against most currencies, including Canada’s.

In Canada, economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter. Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year. Exports and inventory adjustment subtracted from GDP growth in the third quarter, while government spending and new home construction provided a boost. The labour market continues to ease: job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly. Even so, wages are still rising by 4-5%. Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand.

The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices. Combined with the drop in gasoline prices, this contributed to the easing of CPI inflation to 3.1% in October. However, shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs. In recent months, the Bank’s preferred measures of core inflation have been around 3½-4%, with the October data coming in towards the lower end of this range.

With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed. Governing Council wants to see further and sustained easing in core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.

The next scheduled date for announcing the overnight rate target is January 24, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time.

We’d welcome an opportunity to discuss the perspectives presented in this Bank of Canada Maintains Policy Rate — Continues Quantitative Tightening. Please contact our team today at (416)925-3140 or (613)366-8525 or by e-mail.

New Canadian Mortgage Charter aims to help “Vulnerable Borrowers”

The Liberal Government unveiled an initiative called the Canadian Mortgage Charter, aimed to help consumers understand how financial institutions are expected to treat borrowers, in the Fall Economic Statement (FES).

What does the charter say?

The charter contains six guidelines regarding how banks are expected to treat “vulnerable borrowers” under financial strain. Under the charter, banks are expected to:

  • Allow temporary extensions on the amortization period for mortgage holders.
  • Waive fees and costs that would have otherwise been charged for mortgage relief measures.
  • Exempt insured mortgage holders from re-qualifying under the stress test when switching lenders at the time of a mortgage renewal.
  • Require banks to reach out to homeowners four to six months in advance of their mortgage renewal to inform them of affordability options.
  • Allow borrowers to make lump sum payments to avoid negative amortization or sell their principal residence without incurring prepayment penalties.
  • Waive interest on interest when mortgage relief measures result in mortgage payments that fail to cover interest payments on a loan.

Who is a ‘vulnerable borrower’?

The mortgage charter does not define “vulnerable borrower.” The FCAC guidelines define a “consumer at risk” as someone “with an existing residential mortgage loan on their principal residence who is experiencing severe financial stress, as a result of exceptional circumstances, and is at risk of mortgage default.”

Read the full CBC article here.

Is your mortgage coming up for renewal? We can help. Contact us today to plan your next steps and help ease the stress of an upcoming renewal or call us at 416-925-3140 or 613-366-8525.

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