Bank of Canada Drops Interest Rate by 50 Bps - Largest Since 2020.

On Wednesday morning, the Bank of Canada announced a 50 basis point cut to its interest rate for October, lowering the policy rate to 3.75%. This marks the lowest rate since October 2022 and is the most significant reduction since March 2020.

Alongside the rate cut, the Bank issued a statement emphasizing that inflation is now "back around" the 2% target. This improvement was a key factor in the decision to lower the policy rate by 50 basis points, aiming to support economic growth and maintain inflation within the 1% to 3% range.

"If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further. However, the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook," the statement also said. "We will take decisions one meeting at a time. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target."

The last three rate announcements since June have resulted in consecutive quarter-point cuts, reducing the policy rate from a 23-year high of 5% to 4.25%.

October's decision is the second-to-last for the year, with the next announcement scheduled for December 11, 2023. The Bank of Canada has also recently released its schedule for 2025.

While predictions are uncertain, indicators such as the Consumer Price Index, gross domestic product, and employment figures are showing a steady decline, suggesting the possibility of further interest rate cuts. Economists at Scotiabank, in particular, anticipate the policy rate could drop to 3% by spring and remain there throughout 2025

What Does This Mean For The Real Estate Market?

While this latest cut doesn’t affect fixed mortgage rates, it does make a difference for buyers that take on variable rates and it certainly influences consumer confidence.

We’ve seen many buyers sit on the sidelines since 2022 - some due to decreased borrowing power, some just waiting for the bottom to drop. At this point, many buyers are realizing that prices are unlikely to come down and that now is the time to strike.

This latest rate decrease is probably going to stimulate the Ottawa real estate market, making it more active and potentially leading to rising prices before the end of the Fall season.