Wednesday’s announcement that the Bank of Canada has slashed its overnight lending rate by half a percentage point is “great news for the economy,” says the CEO of the Calgary Chamber of Commerce, Deborah Yedlin.
In a highly-anticipated move, the bank says it is cutting its prime rate to 3.75 per cent — that’s the lowest the rate has been since November 2022 and already several of Canada’s biggest chartered banks have announced they are cutting their rates too.
The move means businesses that have outstanding debt, at a variable interest rate, will pay less to finance that debt and homeowners who have variable rate mortgages will have lower monthly payments.
“It means they (homeowners) are going to have a little bit more disposable income and it means businesses will have more to invest in their businesses instead of having to service debt at a higher cost,” says Yedlin
She says its good news for the labour market, too.
“If they were holding back in terms of hiring it means they may have more room to go ahead and hire those people for their businesses.”
The Bank of Canada says the interest rate cut was made possible because of a decline in the rate of inflation.
“Inflation has declined significantly from 2.7 percent in June to 1.6 percent in September,” said the bank in a statement announcing the cut.
That is within the bank’s target of 2 per cent inflation.
Mortgage expert Victor Tran of Ratesdotca says the interest rate cut is great news for homeowners.
“It’s a huge relief for anyone who is currently on a variable rate mortgage or line of credit or anyone who is interested in signing up for one.”
Tran estimates the rate cut will save the average homeowner about $30. per month for every $100,000 they owe on their mortgage.
The Alberta Federation of Labour describes the Bank of Canada announcement “as a good step,” but says, “more must be done to address the cost-of-living crisis.”
AFL President Gil McGowan says, “the Bank of Canada’s high interest rate policy has been bad medicine for working people. It punished workers with more expensive mortgages and priced others out of the housing market altogether, while leaving less money to spend on things like food and other essentials.”
“The Bank of Canada dropped the interest rate,” adds McGowan. “But that doesn’t mean prices have gone down.”
The Bank’s next interest rate announcement is expected on Dec. 11, 2024, and many experts are expecting it to make another cut, perhaps another half-percentage point.