Ottawa, ON July 12, 2024 - The Bank of Canada has reduced interest rates for the second month in a row, lowering its benchmark rate in an effort to control inflation while avoiding a recession. This morning, the central bank announced a further 25 basis point cut, bringing the overnight rate down to 4.50%. The decision comes amid signs of moderating inflation and a slowing labor market. In its statement, the Bank highlighted that inflationary pressures are easing due to excess supply, although rising rent and mortgage interest costs, along with other services, are counteracting this trend.

This rate cut is good news for variable-rate mortgage holders and borrowers with home equity lines of credit (HELOCs), as rates for these products are expected to drop accordingly. After maintaining the highest interest rate in over two decades from July of last year until this June, the Bank has now entered a rate-cutting cycle. This aims to achieve a "soft landing" by bringing inflation to its target without triggering an economic crash.

The overall consumer price index (CPI) fell to 2.7% in June, marking the sixth consecutive month of inflation within the Bank's target range of 1% to 3%. Although core inflation measures remain more persistent, the Bank's recent survey of consumers and businesses indicated that inflation expectations are likely to continue decreasing in the coming months. June also saw the second labor market contraction in four months, with the economy shedding 1,400 jobs. Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen noted that this job loss "increased the odds" of a July rate cut.

The Bank of Canada's next rate decision is scheduled for September 4, and speculation about further cuts before the end of 2024 is expected to grow in the coming weeks.