On September 4, 2024, the Bank of Canada reduced its target for the overnight rate by 0.25 percentage points to 4.25%, with the Bank Rate at 4.5% and the deposit rate at 4.25%. It was the third cut in a row.
Bank of Canada policy rate, %
What the Bank said
- GDP grew 2.1% in the second quarter, led by government spending and business investment, but activity was soft in June and July.
- The labour market continues to slow.
- Inflation slowed to 2.5% in July, and core measures averaged around 2.5%.
- High shelter price inflation is still the biggest contributor to overall inflation.
What it means for Calgary
The policy rate is now 0.75 points lower than in May. Combined with the rise in Calgary listings this summer, buyers have both better financing and more choice than in the spring. The next decision is on October 23, 2024.
Compared with July
In July, the Bank cut to 4.5% and expected core inflation to slow to about 2.5% in the second half of the year. By September, that was already happening: CPI inflation slowed to 2.5% in July, as expected, and the Bank’s preferred core measures averaged around 2.5%. The share of CPI components growing faster than 3% is roughly at its historical norm. Shelter price inflation is still the biggest contributor to total inflation, but the Bank said it is starting to slow, a change from July, when it simply called shelter inflation high.
The economy
Second-quarter growth of 2.1% was slightly stronger than forecast, led by government spending and business investment, but preliminary indicators suggest activity was soft through June and July. Employment has changed little in recent months, while wage growth remains elevated relative to productivity. Globally, growth was about 2.5% in the second quarter, bond yields declined, the Canadian dollar rose modestly against a weaker US dollar, and oil prices were lower than the Bank assumed in July, which is worth watching for Alberta.
Balancing two forces
The Bank described two opposing forces. Excess supply in the economy is pushing inflation down, while price increases in shelter and some other services are holding it up. “Governing Council is carefully assessing these opposing forces on inflation,” it said, adding that decisions will be guided by incoming information. That language leaves room for further cuts without promising them.
What it means for Calgary buyers and sellers
The policy rate is now 4.25%, three-quarters of a point below the 5% level of May. Calgary’s resale market has also changed: CREB reported 4,487 homes for sale in August and more than two months of supply, the most since late 2022, with a benchmark price of $601,800. Lower rates and more listings together give buyers a better position than at any time this year. Variable-rate borrowers will see lower interest costs again as lenders adjust prime rates.
If you are planning to buy this fall, ask your lender to update your pre-approval with current rates and compare offers from more than one lender. If you are renewing, a lower policy rate improves the options for variable and short fixed terms. Sellers should keep in mind that buyers now have more time and more choice, so pricing to the current market matters more than it did in the spring.
Three cuts in a row
June, July and September each brought a quarter-point cut. For a household with a variable-rate mortgage, that adds up to a noticeable change in interest costs compared with the spring. For buyers on fixed rates, what matters more is the trend in bond yields, which the Bank said declined further after July. The next full forecast comes with the October 23 decision.
