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Bank of Canada cut starts to nudge mortgage rates down

In a notable economic shift, the Bank of Canada reduced its key interest rate by 0.25% on June 5, 2024, marking the first rate cut since March 2020. This decision lowers the central bank's policy rate to 4.75%, which is expected to impact mortgage rates and borrowing costs across Canada.

Governor Tiff Macklem cited significant progress in reducing inflation as the driving force behind the cut. Inflation has decreased to 2.7% in April from record highs in 2022, signaling a stabilizing economy. Homeowners with variable-rate mortgages and other debt tied to the central bank’s rate will see immediate benefits, with interest rates dropping by 25 basis points. For instance, a typical variable-rate mortgage could see monthly payments reduced by about $100, translating to annual savings of approximately $1,152.

Fixed mortgage rates, though not directly tied to the central bank's rate, may also decrease as bond yields drop in response to the rate cut. This is good news for prospective homebuyers, who might find more affordable options in the coming months.

The Bank of Canada’s move comes as a relief to many Canadians, especially those who have weathered higher borrowing costs during the rate hikes of the past few years. The rate cut not only offers financial relief but also injects a sense of optimism into the housing market, which has experienced a stagnation in sales recently.

While the future holds the possibility of further rate cuts, the Bank of Canada remains cautious, focusing on sustained economic stability and inflation control. This initial cut is seen as a positive step, providing much-needed economic support and potential for growth.



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