The Big Move
On September 4, 2024, the Bank of Canada cut its target for the overnight rate to 4.25%, with the Bank Rate at 4.5% and the deposit rate at 4.25%. The Bank is also continuing its policy of balance sheet normalization — essentially unwinding some of the pandemic-era support it put in place.
This is the latest in a series of cuts as inflation cools and the economy slows. If you're coming up for renewal or shopping for a mortgage, this shift matters.
What's Happening Globally
The global economy grew by about 2.5% in the second quarter, in line with what the Bank predicted in July. In the United States, growth came in stronger than expected — mostly thanks to consumer spending — but the job market has started to slow. Over in Europe, tourism and services gave the economy a lift, while manufacturing stayed soft. Inflation in both regions continues to ease.
In China, weak domestic demand weighed on growth. Meanwhile, global financial conditions have loosened further since July, with bond yields dropping. The Canadian dollar has appreciated modestly, largely because the U.S. dollar softened. Oil prices are lower than the Bank assumed in July.
Canada's Economy: A Mixed Picture
In Canada, the economy grew by 2.1% in the second quarter, driven by government spending and business investment. That was a bit stronger than the Bank forecast in July, but early signs suggest economic activity was soft through June and July.
The labour market keeps slowing. Employment has barely budged in recent months. Wage growth, however, is still elevated relative to productivity — meaning pay is rising faster than output, which can keep inflation sticky.
Inflation Is Cooling, but Not Everywhere
Inflation slowed to 2.5% in July, as expected. The Bank's preferred measures of core inflation — the ones that strip out the noise — averaged around 2.5%, and the share of items in the consumer price index rising faster than 3% is roughly back to its historical norm.
The biggest contributor to inflation is still shelter — think rents and mortgage interest costs — but even that's starting to slow. Inflation also remains elevated in some other services.
Why the Bank Cut Again
With broad inflationary pressures easing, the Bank's Governing Council decided to reduce the policy interest rate by another quarter of a percent. Excess supply in the economy — more capacity than demand — continues to push inflation down, while price increases in shelter and some services are holding it up.
The Bank is carefully weighing these opposing forces. Future rate decisions will be guided by incoming data and what that means for the inflation outlook. The Bank remains committed to restoring price stability for Canadians.
What This Means for You
If you're renewing or buying, the direction is clear: rates are coming down, but the pace depends on how inflation behaves in the months ahead. Shelter costs are the wildcard. Your best move is to talk to a mortgage broker who can show you what today's rate environment means for your payment, your equity, and how fast you pay your mortgage down.
Reach out to Matt Broom-Hall, Mortgage Broker & Coach, at [matt@hellomortgage.ca](mailto:matt@hellomortgage.ca) to map out your options.
