The latest on Bank of Canada's Sept. 4 interest rate decision
The Bank of Canada lowered its benchmark interest rate for a third consecutive time, reducing its trend-setting policy rate to 4.25 per cent from 4.5 per cent.
The latest decision also paves the way for additional rate cuts in the coming months.
The next Bank of Canada interest rate decision is on Oct. 23.
Further reading:
- Bank of Canada poised to cut rates again in widely anticipated move
- A recent history of Bank of Canada’s interest rate decisions
- How a Bank of Canada rate cut will affect mortgages and other debt payments
Find updates from our reporters and columnists below.
11:40 a.m.
What’s next?
Bank of Canada Governor Tiff Macklem takes part in a press conference, after cutting key interest rate, on September 4.Blair Gable/Reuters
The next Bank of Canada decision is coming Oct. 23. Between now and then, there will be plenty of economic data for central bankers and investors to analyze, starting with the Labour Force Survey on Friday.
Canada’s labour market has struggled of late. The combination of an influx of job seekers and a weak pace of hiring is driving up the unemployment rate, which was 6.4 per cent in July. Friday’s job numbers pertain to August labour conditions.
The Bank of Canada will have two sets of new inflation reports to consider before its next rate announcement. Capital Economics expects fairly tame readings, with the annual rate of inflation hitting 2.2 per cent in both August and September.
Another big date: Sept. 18. That’s when the U.S. Federal Reserve makes its next rate decision, and the consensus view is that the U.S. central bank will begin a cycle of interest rate cuts. The target range for the federal funds rate has been held at 5.25 per cent to 5.5 per cent for more than a year. There are increasing signs that the U.S. labour market is faltering under the weight of higher interest rates.
11:23 a.m.
Macklem on whether rate cuts could cause Canadians to take on too much debt
”The reality is household debt in Canada is quite high. When households have more debt, interest rates have a bigger impact. When we increased our interest rates, it has had a very material impact on Canadians. They are feeling the squeeze of higher interest rates. You can see it in how Canadians are behaving. On a per capita basis they have cut back their consumption. That is not pleasant, it’s difficult, but it has been important to take the steam out of inflation.
Canadians are adjusting to that. Certainly some Canadians are finding it very difficult. With inflation coming down it’s time to start lowering interest rates and taking some of that pressure out.”
11:19 a.m.
Macklem on a ‘soft landing’ for the economy
“We’re certainly a lot closer to landing than we were. Inflation is much closer to the target than we were a year ago, and the economy hasn’t weakened sharply. But we haven’t landed the economy yet. The runway is in sight but we have not landed it yet. As we get closer to 2-per-cent target, we have to guard more against the risk that inflation gets to be too weak and that is factoring into our interest rate decisions.”
11:16 a.m.
Carolyn Rogers on federal changes to immigration targets
“The surge in population has had a big effect on the Canadian economy. In the early rise in inflation when we saw a lot of pressure in the labour market, it helped, it took some of the steam out of the labour market and gradually out of inflation.
Where we’re at now the Canadian economy is having trouble absorbing the number of workers into the job market. We have seen the unemployment rate tick up a bit. It will be important that influx of labour supply starts to match our ability to absorb it.
The government has announced a target they intend to hit and a series of measures; we expect they’ll announce a few more. We need a bit more of detail to understand the execution path to get to that target but because of the significant effect it’s having on the economy it’s something we’re watching very closely.”
11:14 a.m.
Mackem on the U.S. Federal Reserve preparing to cut rates
“Interest rates between Canada and the United States can diverge. There are limits of how much it can diverge but those limits have not become a constraint on Canadian monetary policy. We’re not seeing a big impact on our exchange rate. The divergence has not run up against any limits to this point, and with the markets now expecting the Fed to begin easing we don’t expect it’s going to come into play.”
11:03 a.m.
Macklem on why the BoC decided on a 0.25% rate cut – and not 0.5%
“We started cutting in June, this is our 3rd consecutive decrease, inflation is still above our target, we still need to get inflation down to 2 per cent. We do expect in the coming months it will ease further. Against that background we think a third cut in interest rates is appropriate. If you look at our July forecast we do expect some pick-up in growth.
“We will be assessing the data as it comes out. If we need to take a bigger step we’re prepared to take a bigger step, but at this point 25 basis points looked appropriate.”
10:58 a.m.
Economists react to today’s Bank of Canada rate cut
Here’s a snapshot of how economists are reacting.
Stephen Brown, deputy chief North America economist, Capital Economics:
The tone of the communications was less dovish than we expected following the signs of a slowdown in GDP growth at the start of the third quarter, suggesting a relatively high bar to a larger 50bp cut at the next meeting in October.
The bank’s decision to cut by another 25 bp, to take the policy rate to 4.25 per cent, was expected by all 28 economists polled by Reuters. Markets were nonetheless pricing in a near-25-per-cent chance of a 50bp move ahead of the announcement, which was understandable given the recent weakness of the activity and labour market data. Despite that weakness, the tone of both the policy statement and Governor Tiff Macklem’s accompanying opening statement to the press conference were more or less the same as in July. The policy statement noted that “preliminary indicators suggest that economic activity was soft through June and July,” but wage growth “remains elevated relative to productivity” and “price increases in shelter and some other services are holding inflation up.” In the press conference opening statement, Macklem repeats that “it is reasonable to expect further cuts in our policy rate” and, similarly to in July, that “with inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much.”
That emphasis on the downside risks leaves the door open to a larger 50bp cut at some point, but the bank probably needs to see more progress on core inflation before it seriously considers that option. … For now, our assumption is that the bank will continue to cut by 25bp at each meeting until the policy rate reaches 2.5 per cent next year, but the risks lie in the direction of a more aggressive pace.
Royce Mendes, managing director and head of macro strategy, Desjardins Securities:
Even after three rate cuts, we don’t believe the central bank has done enough to see such a rebound. The housing market is barely responding to lower rates as affordability remains a major hurdle. To unlock the savings that households have built up, we think the Bank of Canada will need to continue cutting interest rates at each of its decision dates until at least the middle of next year. With growth faltering instead of picking up as officials had forecast back in July, the risk is that central bankers will need to slash rates in October by 50bps instead of 25bps to spur a recovery.
Douglas Porter, chief economist, BMO Capital Markets:
We expect the bank to continue grinding down rates in coming meetings, and, while we anticipate a series of 25 bp steps into early next year, we certainly will not rule out a possible 50 bp step at some point. That’s especially true if CPI behaves and/or the unemployment rate takes another big step up. And the reality is that the jobless figures have quickly become equally as important as the inflation data in the bank’s decision making. For now, we look for the bank to cut rates to 3.5 per cent by January, and then to 3.0 per cent by next June, but the risks tilt to the bank going faster than that, and potentially further.
Taylor Schleich and Warren Lovely, economists with National Bank Financial:
With a 25-basis-point rate cut all but assured, the focus of today’s decision was always going to be on the bank’s guidance/stance. Overall, there was very little changed relative to July as Macklem reiterated it is still “reasonable” to expect further rate cuts (as long as inflation co-operates). At the margin, there appears to be a bit more confidence on the inflation outlook as shelter prices are seen as “starting to slow.” And as we got a sense of in July, they “increasingly” want to guard against too much slack and inflation undershooting over the projection horizon. What does it mean for the meetings ahead? To us, the BoC’s base case outlook is for continued 25-basis-points cuts at each of the remaining meetings in 2024 (and likely well into 2025 too). However, there is a growing focus on downside inflation/economic risks which should keep markets pricing some probability of a larger-than-25 basis point cut. That’s appropriate in our view given the balance of risks in the labour market.
Read more on how markets and economists are reacting to today’s Bank of Canada decision.
10:37 a.m.
Bank of Canada’s third interest rate cut expected to help renters, too
A rental apartment complex under construction, bottom, and houses are seen in an aerial view at a new housing development in Langford, B.C., on May 30, 2024.DARRYL DYCK/The Canadian Press
A third interest rate cut by the Bank of Canada – with several more expected this year and the next – is likely to help renters, too.
For one, declining borrowing costs may spur some current tenants to take the leap into homeownership, a factor that would ease rental demand, said Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal.
And the cumulative effects of several cuts will also start to bring more meaningful financial relief to landlords who’ve seen their mortgage payments soar over 2022 and 2023, as the Bank of Canada quickly hiked rates to fight inflation.
For the many condo investors with floating-rate mortgages, lower interest rates are quickly translating into lower payments. That may allow for more wiggle room for them to accept lower rents in markets where rental demand has weakened.
But possibly the most important impact of lower rates on the rental market is a longer-term one, according to Mr. Tal.
Real estate investors have traditionally been the main buyers of preconstruction condos - units that have yet to be built. But high interest rates and construction costs have made it challenging for investors to cover ever-growing monthly outlays, even after outsized increases in rent in major markets such as the Greater Toronto Area.
As a result, investor interest in preconstruction condos has dropped, forcing some developers to delay building new condos that would provide a significant number of additional units that will eventually be available for rent.
“Lower rates eventually will change the economics of condo investing and will bring back investors into the market, and with them urgently needed new supply,” Mr. Tal said.
While that won’t be enough to solve the rental crisis, it will certainly help, he added.
10:30 a.m.
Analysis: How deep will the next Bank of Canada rate cut go?
Going into today’s Bank of Canada interest rate decision, the only real question was how deep the next cut will be. Would it be another quarter-point cut in October, or would the bank signal Wednesday that it is prepared to move more boldly next time with a deeper rate cut to reflect its concerns about a weakening economy.
Borrowers will have to wait longer to find out.
As everyone expected, the bank cut its benchmark interest rate to 4.25 per cent from 4.5 per cent, with Governor Tiff Macklem citing headline and core inflation that continue to ease. But he also said “we want to see economic growth pick up to absorb the slack in the economy.”
That echoed the language Mr. Macklem used in the bank’s last rate announcement in July, offering no hint that the bank is gearing up for a deeper half point cut next time, as a small number of economists had begun to speculate lately.
There’s no question the bank is concerned about the health of the economy and job market. Early indicators for June and July suggest growth was “soft” during those months and employment growth has “stalled” in recent months.
But in the second quarter economic growth of 2.1 per cent topped the bank’s forecast and marked a “healthy rebound” from the latter half of 2023, he said.
Here’s probably the best quote that sums up the tightrope the bank seems determined to cling to: “We are determined to get inflation down to the 2 per cent target, and we want it to stay there. We care as much about inflation being below the target as we do above.”
10:25 a.m.
BoC’s third straight cut will see buyers trickle back into housing market, Royal LePage president says
The real estate industry expects that the Bank of Canada’s third consecutive interest rate cut will entice more potential homebuyers to buy property.Jeff McIntosh/The Canadian Press
The real estate industry expects that the Bank of Canada’s third consecutive interest rate cut will entice more potential homebuyers to buy property.
The central bank’s first two interest rate cuts this summer did not do much to spur sales and transactions across the country have remained below the 10-year average.
Realtors, economists and mortgage brokers have chalked up the slow summer to multiple factors: The higher cost of living, relatively high mortgage costs, summer holidays and an abundance of properties available for sale.
With today’s interest rate cut, the benchmark rate is now 4.25 per cent. The Bank of Canada made no mention of the slow housing market in its interest rate announcement but said it reduced its benchmark rate because inflation has continued to ease as expected.
Phil Soper, president of one of the largest real estate brokerages, Royal LePage, expects buyers to continue to trickle back into the market.
“We will see sales pick up, not sharply but in a steady fashion,” said Mr. Soper, who had initially predicted a “material lift” in sales after the first rate cut. Although the “material lift” did not occur, Mr. Soper said there have been more property showings, which is generally an early indicator of where sales activity is heading.
Today’s interest rate cut will immediately reduce interest costs for borrowers with a variable-rate mortgage. The financial stress for those borrowers appears to be waning since the central bank stopped raising interest rates last year.
Fewer homeowners are adding unpaid interest to their mortgages, according to the major Canadian lenders’ financial results. When interest rates peaked at 5 per cent in August of 2023, troubled mortgages made up about 20 per cent of the residential mortgage portfolios for three major banks. That share is now much lower, according to their latest results.
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10:17 a.m.
Analysis: After three consecutive BoC cuts, a rethink of saving and investing is required
Changes in the Bank of Canada’s overnight rate tend to be described in terms of what they mean for the cost of borrowing for households and business, which is fair. Borrowed money keeps the economy moving.
But after three rate cuts by the Bank of Canada in recent months, we have reached a point where a rethink of saving and conservative investing is required. Returns from bank savings accounts, savings products for investors and guaranteed investment certificates are slipping below thresholds that made them so appealing in recent years.
Where GICs paid as much as 6 per cent 12 months ago, it’s now common to see rates in the 3.8 per cent to 4.8 per cent range. Expect rates on investment savings accounts, designed to be used in investment accounts, to fall to 3.75 to 4 per cent after today’s rate cut. High-interest savings exchange-traded funds and T-bill funds will likely edge down to around 4 to 4.25 per cent. Rates on savings accounts from alternative banks are falling like autumn leaves, though you can still get 4 per cent for now at Motive Financial and Neo Financial.
The inflation rate was most recently clocked at 2.5 per cent, so real rates of return from savings products are still positive in many cases. But we’re now at a point where keeping money in savings may not be as justifiable as it was 12 months ago.
A Gen Z guide to what central bank rate cuts mean for investing, homebuying and emergency savings
If your goal is safety more than growth, then rates are what they are. If you’re parking investing dollars in savings, it’s time to start thinking about whether your money could be better deployed in a diversified portfolio.
Falling interest rates on bonds and GICs have sparked interest in dividend stocks, which means yields are falling. But you can still find roughly 15 blue chip dividend stocks with yields of 4.5 to 8.5 per cent. Falling rates have also sparked the bond market – the benchmark FTSE Canada Universe Bond Index was up 7.8 per cent on a total return basis for the 12 months to Aug. 31. Total return here means bond price changes plus interest paid.
Stocks are as risky as ever these days, particularly if you feel there’s a strong chance of recession. But it’s not ideal to indefinitely keep investment dollars in cash while you wait for more stock market clarity. Money invested in a diversified portfolio should earn at least 5 to 6 per cent after fees over the long term. Savings got you that much 12 months ago, but no longer.
10:08 a.m.
Markets react to today’s BoC rate cut
The Canadian dollar barely budged and stayed within its range upon the release of the latest Bank of Canada interest rate decision.Mark Blinch/Reuters
This was certainly a well telegraphed quarter-point rate cut and the market reaction reflects that. The Canadian dollar barely budged and stayed within its range so far today of between 73.73 US cents and 73.90 US cents. Canada’s two-year bond yield is down about three basis points so far at 3.222 per cent - about where it was prior to the 9:45 a.m. ET. decision and in line with the move in the equivalent U.S. Treasury.
The next BoC meeting is on Oct. 23, and implied interest rate probabilities in swaps markets now suggest about a 90 per cent chance of another quarter-point cut at that time – and 10 per cent odds of no move. Markets continue to price in very strong odds of a further quarter-point cut at the following meeting too, on Dec. 24.
How economists and bets for future rate moves reacted to today’s BoC decision
By next April, money markets suggest the Bank of Canada overnight rate will sit at 3.25 per cent - a full percentage point below where it now resides today.
So, steady as she goes. Even equity markets are starting the day flat.
Now we’ll see if today’s BoC press conference holds any surprises for markets. So far, today’s decision was almost perfectly priced in.
9:45 a.m.
Bank of Canada cuts key interest rate to 4.25% in widely anticipated move
The Bank of Canada lowered its benchmark interest rate for a third consecutive time on Wednesday and reiterated that economic growth needs to pick up so that inflation doesn’t fall too much, paving the way for additional rate cuts in the coming months.
In a widely anticipated move, the central bank reduced its trend-setting policy rate to 4.25 per cent from 4.5 per cent. The private sector expects several more cuts over this year and 2025 as part of an easing cycle that brings borrowing costs to less onerous levels.
Inflation has cooled off substantially over the past two years, in part because higher interest rates have forced some households and businesses to curb their spending.
But in the final stages of their inflation fight, central bankers are worried about downside risks to the economy and the potential for inflation to overshoot the 2-per-cent target on the way down – concerns that were repeated on Wednesday after being raised at the July announcement.
“With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much,” Governor Tiff Macklem said in the prepared remarks of his opening statement on Wednesday.
“We want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2-per-cent target,” he added.
9:10 a.m.
The U.S. outlook
U.S. Federal Reserve Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy on July 31.Kevin Mohatt/Reuters
The Federal Reserve is about to join the party.
After holding U.S. interest rates steady for more than a year, the Fed is poised to start cutting them in two weeks, given that labour market conditions are weakening south of the border.
Fed chair Jerome Powell has prepared households, businesses and investors for an imminent rate cut in remarks that are broadly similar to those of his Canadian counterpart, Tiff Macklem.
“The upside risks to inflation have diminished. And the downside risks to employment have increased,” Mr. Powell said at the recent Jackson Hole economic conference in Wyoming.
“The time has come for policy to adjust,” he added.
While the U.S. is posting solid economic growth, cracks are appearing in the labour market. The unemployment rate has risen to 4.3 per cent, nearly one percentage point higher than a recent low, and the pace of hiring has slowed.
“We will do everything we can to support a strong labour market as we make further progress toward price stability,” Mr. Powell said in his Jackson Hole speech. “With an appropriate dialling back of policy restraint, there is good reason to think that the economy will get back to 2-per-cent inflation while maintaining a strong labour market.”
8:20 a.m.
Interest rate swaps pricing in six BoC rate cuts by July 2025
Investors are expecting plenty of rate cuts in the coming months.
Interest rate swaps, which capture market expectations of monetary policy, were pricing in six rate cuts in Canada by June or July of 2025, according to Bloomberg data on Tuesday morning. That would take the Bank of Canada’s benchmark interest rate to 3 per cent.
It’s a similar story south of the border. As of Tuesday, traders were pricing in one percentage point of cuts from the U.S. Federal Reserve over its three remaining meetings this year. This means investors are expecting a larger rate cut of half a percentage point at one of those announcements.
Looking further out, traders are expecting two percentage points of rate reductions from the Fed by July, 2025. That would bring the target range for the federal funds rate to 3.25 per cent to 3.5 per cent.
The Fed has yet to start easing its policy interest rate,, although it’s widely expected to do so at its next decision in two weeks.
7 a.m.
Bank of Canada expected to cut policy rate again
A sign at the Bank of Canada building is seen in Ottawa, on Wednesday, July 24, 2024.Justin Tang/The Canadian Press
The Bank of Canada is widely expected to cut interest rates for a third consecutive time on Wednesday. That would take the bank’s benchmark interest rate to 4.25 per cent from 4.5 per cent.
While the decision could be anti-climactic, economists and investors will be parsing Governor Tiff Macklem’s comments for any signs of how future decisions will turn out, particularly if there are hints of larger rate cuts than the typical quarter-point trims.
At the July decision, the central bank expressed its concerns about economic growth and the potential for inflation to drop below the 2-per-cent target – an important shift in the bank’s communications.
Mr. Macklem reiterated in July that the BoC is not on a predetermined path, but that additional rate cuts should be expected if inflation continues to subside. That’s exactly what is happening.
Inflation is no longer the threat it once was, despite the risks posed by high housing costs. The Consumer Price Index rose at an annual rate of 2.5 per cent in July, down from 2.7 per cent in June. Many core measures of inflation – which strip out volatile aspects of CPI – also eased in July.
Capital Economics said in a research note that it expects inflation to hit 2.2 per cent in August and hold there in September. The August CPI numbers will be published on Sept. 17.
The BoC expects inflation to return sustainably to the 2-per-cent target in the second half of 2025.
Read more about today’s Bank of Canada announcement.