Canada’s Central Bank Expected to Extend Rate-Cut Cycle in October and December

Expectations regarding the continuous cuts in interest rates by the Central Bank of Canada monetary policy authorities to extend into October and December 2024. Experts are said to have cut this aspect off of the argument even though it will help the economy’s growth, which for many sectors is grappling at recessionary levels. But what exactly does this mean for the average Canadian?

It is not the first time that the central bank has reduced rates this year. This is a growing trend as central banks around the globe cut their rates to stimulate their economy, which has started to slow down. The important question is how these changes will affect the average Canadian citizen and the economy in general.

So, let’s take it step by step and try to understand what is going on, why the Bank of Canada is lowering rates, and what are some of the most plausible scenarios for the next few months.

Why Is The Central Bank of Canada Cutting Rates?

Since the economy has been asleep for a while, the Bank of Canada tried to help stimulate growth by cutting interest rates. The economy, in general, has well cooled down after years of overheating caused by high inflation and high interest rates.

The appetite for goods and services is pretty average, and the expansion rate in catching up does not seem as fast as it used to be.

There was a good potential that Canada’s GDP would contract. Structural factors contributing to the slowdown stem from the unemployment rate, which continues to rise in Canada. It is clear that is how the unemployment rate has increased, and now men are facing 6.6%, which is not what the Bank of Canada needs it to be.

Simultaneously, it is worth noting that there has been steady disinflation. The Bank of Canada’s target is to achieve relatively stable inflation at around 2%; however, data suggests it will be even lower. This type of macroeconomic environment, with inflation lower than expected, gives the central bank room to lower rates without the fear of inflation from high growth rates.

What’s Happened So Far?

In September 2024, the Central Bank of Canada cut interest rates for the third time in a row, setting the key rate at 4.25%. This cut is also aimed at fulfilling demand with desired supply and vice versa, bringing consumption an arid 4…. Jump-start expenditure by consumption-levitating actions.

Borrowing costs decrease due to cheaper rates, making it easier to get loans, buy houses, and establish new businesses, which aids the economy’s activation.

With this prediction, experts are also forecasting an additional DEP cut of 25 basis points in October and still more of the same in December. If these predictions turn out to be accurate, they would not depart from a very common observation across most large economies.

What Will These Rate Cuts Mean for Canadians?

When interest rates go down, it affects everyone in different ways. Let’s talk about what this could mean for you.

1. Lower Borrowing Costs: One of the biggest effects of lower interest rates is that borrowing becomes cheaper. Whether you’re looking to take out a mortgage, a car loan, or a business loan, lower rates mean you’ll pay less in interest. This can encourage people to spend more, which is good for the economy.
2. Impact on Savings: On the flip side, lower interest rates mean that your savings won’t grow as quickly. If you rely on interest from savings accounts or low-risk investments, you’ll likely see lower returns in the coming months. It’s something to remember if you’re trying to grow your savings.
3. Housing Market: These rate cuts could boost the housing market. Lower mortgage rates make it more affordable to buy a home, which could drive up demand. However, increased demand could also lead to higher home prices, especially in hot markets.
4. Currency Impact: When a country cuts its interest rates, its currency often weakens. A weaker Canadian dollar could make imported goods more expensive, which isn’t great for consumers. On the positive side, a weaker dollar would make Canadian exports more competitive in the global market, which could help industries like manufacturing and agriculture.

What Can We Expect in the Coming Months?

As we head into the final months 2024, all eyes will be on the Central Bank of Canada. If economic conditions don’t improve, the central bank will likely continue to cut rates. The October and December cuts are widely expected, but the bank will be closely watching the data to ensure it’s making the right decisions.

Global events could also impact Canada’s economic outlook. A slowdown in major economies like the U.S. or Europe could have ripple effects in Canada. Conversely, if the global economy picks up, Canada could also see a boost.

Stay Informed and Be Prepared

As the Bank of Canada moves forward with its rate-cut cycle, it’s important to stay informed about what’s happening and how it could affect your finances. Whether you’re a homeowner, a saver, or a business owner, interest rate cuts can greatly impact your financial situation.

If you’re unsure how to navigate these changes, now might be a good time to speak with a financial advisor. They can help you understand how lower rates affect your investments, savings, and borrowing costs.

In the meantime, monitor the Bank of Canada’s next moves and prepare for potential changes in the economy as we approach 2025.