What the Bank did
The Bank of Canada lowered its target for the overnight rate to 3.75% on October 23, 2024. That's half a percentage point in one move — the biggest cut in this cycle. The Bank Rate is now 4% and the deposit rate sits at 3.75%. The Bank is still shrinking its balance sheet as planned.
Why they cut
Inflation dropped from 2.7% in June to 1.6% in September. Shelter costs are still high but starting to ease. Excess supply across the economy has pulled prices down on a lot of goods and services, and cheaper oil brought gas prices down too. The Bank's core inflation measures — the ones it watches most closely — are now below 2.5%. Businesses and consumers aren't expecting runaway inflation anymore.
Meanwhile the economy grew around 2% in the first half of the year, but spending per person has been falling. The unemployment rate hit 6.5% in September. Population growth keeps expanding the workforce faster than companies are hiring, and that's hitting younger people and newcomers hardest. The economy has more capacity than it's using right now.
What the Bank expects next
The Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026. Growth should pick up gradually as lower rates support spending. They're expecting consumption per person to recover slowly, residential investment to rise as demand for housing lifts sales and renovations, and business investment to strengthen when demand picks up. Exports should stay strong thanks to robust demand from the United States and the Trans Mountain Expansion pipeline.
Inflation is expected to stay close to the 2% target over the next couple of years. Upward pressure from shelter and services should fade, and downward pressure will ease as the economy absorbs that excess supply.
What comes next for rates
With inflation back around 2%, the Bank cut by half a percent to support growth and keep inflation in the middle of its 1% to 3% range. If the economy unfolds roughly as forecast, they expect to cut the policy rate further. But the timing and size of those cuts will depend on the data that comes in and what it means for inflation. They're taking it one meeting at a time.
What this means for your mortgage
Variable-rate holders will see their payments drop or their principal paydown speed up, depending on how your mortgage is structured. If you're renewing soon or weighing fixed versus variable, this is worth a conversation — not because rates are 'good' or 'bad', but because your strategy should fit where rates are likely headed and what you can handle if they don't. Reach out to [matt@hellomortgage.ca](mailto:matt@hellomortgage.ca) and we'll walk through what makes sense for your situation.
