Bank of Canada lowers key interest rate to 4.75 per cent

After six consecutive rate holds, the Bank of Canada (BoC) lowered its key interest rate to 4.75 per cent in its fourth update of the year on the morning of Wednesday, June 5.

This marks the BoC's first rate cut in over four years.

"With continued evidence that underlying inflation is easing, the Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points," the Bank said in a release. "Recent data has increased our confidence that inflation will continue to move towards the 2 per cent target. Nonetheless, risks to the inflation outlook remain."

Canada's central bank kept the key interest rate at 5 per cent in January, March, and April.

Canadians saw seven interest rate hikes in 2022. Another increase followed in January 2023, bringing the key rate to 4.5 per cent.

The BoC held its key rate at 4.5 per cent — precisely as experts predicted — until June 7, when it was raised to 4.75 per cent. On July 12, the BoC raised the key rate to 5 per cent, with the bank rate at 5.25 per cent, and on September 6, it announced that it was holding those rates.

This year's three rate holds came after three consecutive ones in 2023.

In a report published in January, Oxford Economics researchers said they believed the 5 per cent key rate will be held until mid-2024, when the BoC will trigger a cycle that lowers it. And that's precisely what happened.

With this in mind, industry experts were almost sure another rate hold was coming.

Ratehub.ca Co-CEO and president of CanWise mortgage lender James Laird shared his thoughts in late May, saying there was a chance we'd finally get the first rate cut since March 2020.

So far, Laird has correctly predicted all three rate holds for the year. He'd suggested that those following the BoC's announcements focus more on its commentary.

What should homeowners do given the BoC interest rate announcement?

Laird said that with a rate cut, it will be interesting to see if heat returns to the real estate market across the country. "Perhaps a quarter-point cut will not be enough to fuel the fire," stated Laird.

Those with a variable-rate mortgage or home equity line of credit (HELOC) can finally get some rate relief.

He added that fixed rates will likely remain unchanged regardless of BoC cuts since rate cuts are already priced into the current bond market.