For the third time in as many meetings, the Bank of Canada (“BoC”) has reduced interest rates by 0.25%. After the announcement on September 4, the BoC’s overnight rate is currently 4.25%, which means most financial institutions in Canada may also be poised to adjust their lending and savings rates accordingly.

This most-recent rate cut by the BoC was largely anticipated by the market, given that inflation and other key indicators continue to trend lower, and the Canadian economy shows more signs of weakness. The latest year-over-year reading saw inflation cool to 2.5% in July, down from 2.7% in June.¹ This rate is heading toward the BoC’s preferred target of 2.0% and is significantly lower than the 8.1% reached in June 2022. In the second quarter of 2024, gross domestic product (“GDP”) declined slightly (0.1%) on a per capita basis, marking the fifth straight quarter of declining GDP.² In addition, the labour market continues to face challenges amid difficult economic conditions, while consumer debt – especially credit card balances, which sit at a 17-year high in Canada³ – remains a major concern.

Generally speaking, when inflation is under control and interest rates are not skyrocketing like they did from roughly March 2022 to July 2023, economic conditions are favourable for consumers, equity investors and businesses alike. When businesses are thriving, they tend to hire more employees, which helps bolster the labour market and improve financial stability for many individuals and families.

On July 24, when interest rates were reduced again following the first rate decrease of this economic cycle (on June 5), we posted an article discussing what lower interest rates might mean for borrowers and savers. We discussed how lower rates will offer near-term relief to those with lines of credit or variable-rate mortgages tied to the prime lending rate, while those who hold fixed-rate mortgages may benefit if lower rates remain in place when it’s time to renew their mortgage term. Feel free to read July’s blog article for more info.

The next interest rate announcement by the BoC is scheduled for October 23, 2024. Whether or not interest rates continue to decline will depend largely on factors like the state of Canada’s (and the global) economy, as well as prevailing geopolitical issues that may impact overall economic circumstances.

If you have questions about how this sustained trend of lower interest rates could affect your financial situation, don’t hesitate to contact an Alterna Advisor today.


^1. https://www150.statcan.gc.ca/n1/daily-quotidien/240820/dq240820a-eng.htm 

^2. https://www150.statcan.gc.ca/n1/daily-quotidien/240830/dq240830a-eng.htm 

^3. https://www.wealthprofessional.ca/news/industry-news/consumer-debt-rises-to-25-trillion-average-credit-card-balance-at-17-year-high/386824