Benchmark Interest Rate Now Set at 3.25%
In a widely anticipated move, the Bank of Canada (BoC) has followed up its previous rate cut with another half-point reduction to its benchmark interest rate, which now stands at 3.25%. This is the fifth consecutive rate cut, despite a slight uptick in inflation, which rose to 2% in October from 1.6% in September. While inflation remains at the BoC’s target, the central bank has expressed growing concerns about the overall health of the economy.
Interest Rates and the Canadian Housing Market
Looking ahead to 2025, the housing market in Canada is expected to rebound, according to the latest report from RE/MAX Canada. The positive outlook is fueled by a series of interest rate cuts in the latter half of 2024, with more rate reductions predicted in 2025. As buyers are expected to return to the market, sellers have begun listing more properties. The national average residential price is forecast to rise by 5% next year, with home sales projected to increase in 33 out of 37 major markets, in some cases by up to 25%.
Despite ongoing affordability challenges, the series of interest rate cuts and adjustments to the mortgage stress test are providing much-needed relief for prospective buyers, particularly first-time homebuyers. However, an uptick in sales combined with limited housing supply is likely to drive prices higher, a trend that is expected to emerge across most Canadian housing markets.
According to Christopher Alexander, President, RE/MAX Canada
Bank of Canada’s 2025 Policy Interest Rate Schedule
The Bank of Canada announces its overnight rate target eight times a year, usually on Wednesdays. The schedule for 2025 is as follows:
- Wednesday, January 29
- Wednesday, March 12
- Wednesday, April 16
- Wednesday, June 4
- Wednesday, July 30
- Wednesday, September 17
- Wednesday, October 29
- Wednesday, December 10
Full Interest Rate Announcement:
The Bank of Canada has reduced its target for the overnight rate to 3.25%, with the Bank Rate at 3.5% and the deposit rate at 3.25%. This decision is part of the Bank’s ongoing efforts to normalize its balance sheet.
The global economy is largely evolving as expected, according to the BoC’s October Monetary Policy Report (MPR). In the United States, the economy remains strong, supported by robust consumer spending and a solid labor market, though inflationary pressures persist. In Europe, growth indicators have weakened, while in China, a combination of policy actions and strong exports is driving growth, though household spending remains subdued. Globally, financial conditions have eased, and the Canadian dollar has depreciated against a stronger US dollar.
In Canada, the economy grew by 1% in the third quarter, slightly below the BoC’s previous forecast, and the outlook for the fourth quarter remains weaker than anticipated. Business investment, inventories, and exports all contributed to the softer growth, while consumer spending and housing activity showed signs of improvement, suggesting that lower interest rates are beginning to boost household spending. Revisions to historical GDP data also indicate that investment and consumption have been higher than previously reported.
The unemployment rate rose to 6.8% in November, as employment growth lagged behind the increase in the labor force. While wage growth showed some signs of easing, it remains elevated relative to productivity.
Several government policy measures, including reduced immigration targets and changes to the GST and mortgage rules, will have an impact on growth and inflation in Canada. While these measures are expected to dampen demand, the BoC is focusing on long-term trends in its policy decisions.
The Bank of Canada notes that core inflation has remained close to the 2% target since the summer, with shelter-related price pressures moderating and goods prices also easing. The temporary GST holiday is expected to lower inflation in the short term, but this effect will reverse once the holiday ends.
Given that inflation is holding steady at around 2% and the economy is operating below potential, the BoC has reduced the policy rate by 50 basis points to stimulate growth and ensure inflation stays within the target range. The central bank will continue to monitor economic conditions and adjust its policy as necessary to maintain price stability.
Source: Re/Max Canada
