Bank of Canada interest rate cut to signal greater confidence in Alberta's economy: ATB Financial

The Bank of Canada is pictured in Ottawa on Tuesday, Oct. 22, 2024. THE CANADIAN PRESS/Sean Kilpatrick

The Bank of Canada lowered its benchmark overnight rate by 50-basis points to 3.75 per cent on Wednesday, marking the biggest reduction in borrowing costs since March 2020 and what could be a much-needed boost for Alberta's economy.

This marks the fourth rate cut in a row by the central bank as inflation has now dropped from 2.7 per cent in June to 1.6 per cent in September.

ATB Financial chief economist Mark Parsons correctly predicted the half percentage point drop in his recent forecast, noting that this was justified as inflation is back on target.

"This is great news, I mean, a lot of people have been waiting for this. You see lower borrowing cost and I think over time, it's going to give Canadians and Albertans more confidence going into 2025 but we do expect the people to stay cautious too," said Parsons.

"Price levels are much higher than they used to be and we do see a wave of mortgage renewals over the next two years at higher interest rates than before, but overall, it's an important chapter in the battle against inflation."

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Parsons expects another final rate cut in December and the key interest to sit at around 2.75 per cent by the midpoint of next year.

ATB forecasts the Alberta economy to also grow by about 2.8 per cent next year, which is about double the 1.2 per cent growth rate that the Bank of Canada projected for the national economy.

The drop is comforting for Calgarians like Eliane Chouinard who just completed the purchase of her first home and began paying off her variable rate mortgage.

"It will be great to the payments down a little bit and put more towards the actual debt versus the interest," she said.

"I picked the variable rate with the hope of seeing these reductions so it will be nice right now to have a little more flex room in my budget and to be able to put more towards investments and retirement so it's definitely looking up for me."

Uptick in mortgage pre-approvals expected: real estate expert

The question now remains as to whether this will be enough to shift the holding pattern of the housing market overall.

According to mortgage and real estate expert Victor Tran with RATESDOTCA, many prospective buyers or sellers might take more of a cautious approach.

"While this will likely encourage some buyers to enter the marker and may encourage more sellers to list in anticipation of these buyers, it's likely that many will wait for the final rate announcement of the yar before making a move," Tran said.

"Buyers are worried about moving ahead before the market bottoms out. The problem is that no one can accurately predict when that will happen.

"You can't time the market."

Tran adds that it's likely that an uptick in pre-approvals for mortgages will follow this announcement and that a significant uptick in sales activity and home prices could signal that they must move now or miss their chance.

"We may see this psychological shift in the coming weeks, or after the December announcement, depending on future decreases or rate holds. But once the market begins to move, it's likely to heat up quickly pushing home prices higher. This may lead to an unseasonably busy winter season, and a busy spring season in 2025."

Bank notes issued by the Bank of Canada are seen in a display case at the Bank of Canada Museum in Ottawa, on Wednesday, Sept. 4, 2024. THE CANADIAN PRESS/Justin Tang

'A sigh of relief': Bank of Canada

Tiff Macklem, governor of the Bank of Canada, said Wednesday that the interest rate cut should be welcome news to many.

"I think Canadians can breathe, breathe a sigh of relief," he said, acknowledging that Canadians have been struggling under the weight of high inflation.

That point was underscored by senior deputy governor of the central bank Carolyn Rogers when pressed on how Canadians aren't necessarily feeling like their finances are doing better, despite this fourth straight rate cut.

"It means that prices aren't going to keep going up, but every time you go to the grocery store, I'm sure you're feeling that fact that prices have come up," said Rogers, adding it's going to take a little while for Canadians to feel the effects of the price of food, rent and housing stabilize.

The Bank of Canada expects the global economy to expand at a rate of about three per cent over the next two years with growth in the United States expected to be stronger than previously forecast.

"Household spending and business investment have picked up this year, but remain soft," Macklem told reporters.

The central bank also notes financial conditions across the world have eased and global oil prices are about ten dollars lower than predicted in the July monetary policy report.

According to the bank, the Canadian economy grew by around two per cent in the first half of the year and is expected to grow by 1.75 per cent in the second half of 2024.

Exports in Canada have also been boosted by the opening of the Trans Mountain expansion pipeline.

But it's not all good news.

The central bank notes the Canadian labour market remains soft as the unemployment rate rose to 6.5 per cent in September, a full percentage point higher year over year.

"Business hiring has been weak, which has particularly affected young people and newcomers to Canada," said Macklem, adding the number of workers has increased faster than the number of jobs.

According to the bank, GDP growth is expected to gradually strengthen to about two per cent in 2025 and 2.25 per cent in 2026 as a result of lower interest rates.

With files from CTV News' Mike Le Couteur