On Wednesday June 5th, the Bank of Canada made their first cut to a key interest rate which directly impacts homeowners and those seeking to buy a home of their own.
This rate, which is referred to as the overnight interest rate, is the rate at which banks lend or borrow funds from the Bank of Canada.
This in turn impacts mortgage rates as well as general borrowing rates for all Canadians.
This rate has been slowly bumped up to slow down buying and decrease the rate of inflation in Canada, and the central bank will increase the overnight interest rate because it makes borrowing and spending more expensive.
The overnight interest rate is now officially set at 4.75%, down from 5%.
This decrease marks the first time the overnight interest rate has been decreased since March 2020.
The Bank of Canada credits this decrease in the key rate to the current stabalization of the country’s economy and the growth of Canada’s gross domestic product in the first quarter of 2024.
According to the central bank, inflation in most sectors, with the exception of housing, has decreased.
As of April, the consumer price index (CPI) is down to 2.7%. The CPI measures inflation in consumers’ day-to-day spending.
The CPI and rate of inflation are predicted to move closer to the 2% target over the next year.
So, for now the overnight interest rate has been decreased which may prompt people to spend more.
The next Bank of Canada announcement regarding the overnight rate target is slated for July 24th.
