This Wednesday, September 17, the Bank of Canada will announce their plans to cut or increase the interest rate. Or do nothing. As we will discuss, many economists expect a decrease. Reuters reports that 80% of economists in their poll predict the Bank of Canada will cut the interest rate 25 basis points down to 2.5% this upcoming Wednesday. Today, let’s talk about why the Bank of Canada is expected to drop the interest rate by 25 basis points.Canada Mortgage Trends spoke to Ali Jaffery, an economist with CIBC Capital Markets. Jaffery stated that the case for rate relief in Canada is strong given that we are headed towards a recession. An example of our weakened economy, according to Jaffery, is the Canadian job market. Across Canada in August alone, 65,500 jobs were lost, leading our country to the highest unemployment rate in 9 years outside the pandemic at 7.1% nation-wide. According to Stats Canada, as of September 5th, this means there were 1.6 million unemployed Canadians in August. The Toronto Star reported that several Bank of Canada officials “indicated they would support further cuts if the labour market continued to weaken.” They also interviewed an economist who said that the current state of the labour market may even be enough alone to justify an interest rate cut. They stated that the labour market is indicative of greater market weakness given that unemployment has seeped into industries that are not affected by tariffs. Reuters cited a TD Securities strategist who stated that the Bank of Canada is unlikely to overlook the evidence of labour and general market deterioration.&nbsp;The Toronto Star commented on the weakening of our economy, reporting that Stats Canada found “the biggest contraction in economic activity since the pandemic in the second quarter, resurfacing fears of a looming recession.” Most economists cited in the Toronto Star are blaming this economic downturn in the current trade war between Canada and the United States. They stated, “economists largely blamed the GDP drop on the trade war, since it was driven by lower exports as well as weaker business investment in machine equipment.” Economists have suggested that the tariffs have had their own negative direct effects on a portion of the economy but even for industries not directly impacted by the tariffs, the uncertainty resulting from the tariffs is not inspiring businesses to spend.&nbsp;Yahoo commented on the housing perspective. They mention the double-edged sword the interest rate cuts can be regarding housing demand. Of course, cutting borrowing rates will increase demand given the immediate relief it offers. That said, there is also the concern of increasing demand in turn resulting in price appreciation. Yahoo says that interest rate cuts may offer momentary relief for interested homebuyers but that such attractive borrowing costs can increase competition and therefore put a strain on affordability especially in areas affected by low supply.&nbsp;If you recall, the last interest rate announcement was in July and the Bank decided to hold the interest rate at 2.75%. This is because of the heightened market uncertainty given tariff impacts and labour data. According to the Toronto Star, however, there has since been an emergence of data that offers evidence of a struggling market.&nbsp;Some economists, however, suggest you don’t get your hopes up for a rate cut. Other economists believe the Bank of Canada will hold the interest rate exactly where it is given inflation pressures which would make the Bank of Canada more hesitant to stimulate the economy right now.Consumers have shown a clear bias toward taking variable rate mortgages in recent months. Coupling this with a significant number of mortgages renewing over the next year to 18 months, and we can see that a rate cut would be very welcome.

Will the Bank of Canada Cut Rates This Week? What It Means for Homebuyers

What Bank of Canada rate changes may mean for mortgages, housing affordability, and the Canadian economy this fall.

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