First National Financial LP

Residential Mortgage Commentary - The rate cut arrives

  • First National Financial LP

The highly anticipated, long awaited, often debated, and much desired Bank of Canada rate cut has been delivered.

At its last setting the central bank trimmed 25 basis points off its benchmark, overnight policy rate dropping it to 4.75%.  The Bank had held at 5.0% six times.  It is the first cut since the Bank started its inflation fighting, hiking cycle back in March of 2022.

The cut is relatively small but it sends a pretty big signal that the BoC has confidence that its plan is working.  The Consumer Price Index fell to 2.7% in April, down from 3.4% in December.

 “If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2.0% target continues to increase, it is reasonable to expect further cuts to our policy interest rate,” said Bank Governor Tiff Macklem.

“But we are making our interest rate decisions one meeting at a time,” he added.

Macklem specifically mentioned shelter price inflation (home prices, mortgage costs and rent) as a potential sticking point.  There are concerns that falling interest rates could release some of the pent up demand in the housing market, fueling price increases.

However, most analysts do not expect a quarter-point cut will trigger a flood of buyers pouring into the market.

The broad expectation is the Bank will hold at 4.75% for its July setting, with good potential for another cut in September and, probably, one more by the end of the year.