Supersized interest rate cut aims to spur economy

Does today’s news from the Bank of Canada mark the start of better times? Maybe.

There is certainly plenty of buzz surrounding this morning’s announcement that the policy interest rate has been cut by 0.5% to stand at 3.75%. It’s the biggest drop since 2020, back when the bank needed to reassure an economy frozen by fear in the early days of the pandemic.

To better understand today’s situation, the following post by RBC is helpful. Cutting Through Interest Rate Chatter: What Interest Rate Changes Really Mean for You offers a few ways to think about today’s news. The cut has potentially created a “sweet spot” for first-time home buyers. As more people decide the time is right to list their house, buyers might be able to take advantage of a lag in prices before they return to previous levels.

Today’s rate cut is also welcome news for homeowners needing to renew mortgages. The landscape looks much better than it did before the Bank started its series of four straight rate cuts. Variable mortgage holders will also feel immediate relief with more money staying in their pockets or going toward their mortgage’s principal.

And best of all, more rate cuts appear to be on the horizon. According to the Bank of Canada’s Governing Council, it will continue to lower the rate if the economy stays on its expected path.