Bank of Canada Rate Decision Explained: Dec 11, 2024

The Bank of Canada (BoC) delivered its final interest-rate decision for 2024 on December 11, cutting the policy interest rate by 50 basis points from 3.75% to 3.25%. This trend-setting overnight rate influences lenders’ prime rates and, in turn, variable borrowing costs. The reduction brings the benchmark down by a cumulative 175 basis points from its peak of 5%—a level the BoC held between July 2023 and June 2024.

This December move marks the BoC’s second consecutive “oversized” cut (anything larger than 25 basis points), following a similar reduction in October. The Bank cited progress in bringing inflation back to its 2% target and a cooling economy as reasons for the larger moves. The decision followed fresh economic data: third-quarter GDP grew by just 1%, below the BoC’s 1.5% forecast, and the November unemployment rate rose to 6.8%, the highest since 2017 when excluding pandemic years. The BoC also noted external risks—such as the possibility of increased tariffs with the U.S.—and said it will approach future rate decisions “one announcement at a time.”

Fewer, slower cuts may come

Governor Tiff Macklem said the five rate cuts the BoC has made to date are working to bring inflation down and that monetary policy no longer needs to be as restrictive. He signaled a more gradual path forward, explaining that with the policy rate now substantially lower, future decisions will depend on new data and how it affects the inflation outlook.

Economists generally expect the Bank to continue trimming rates, but more cautiously. Many now forecast a terminal overnight rate—meaning the bottom of the rate cycle—near 2.5% by the second half of 2025. In a note after the announcement, Douglas Porter, Chief Economist at Bank of Montreal, wrote that given slack in the economy and trade uncertainty, small 25-basis-point reductions are likely in 2025, bringing the overnight rate down to about 2.50% before mid-year. He also warned that broader U.S. tariffs on Canada would likely push rates even lower if implemented.

What does this mean for your mortgage, investments and savings? Read on for practical takeaways.

The impact on Canadians with a mortgage

For mortgage holders, this rate cut offers welcome relief. The nearly 2% drop from the peak has eased the pressure from the expected “mortgage renewal cliff” many borrowers feared. Homeowners who locked in ultra-low rates in 2021 and 2022 faced much higher payments when renewing in 2023–24; declining rates now help soften that burden for many.

The impact on variable-rate mortgages

Variable-rate mortgages move with lenders’ prime rates, which generally follow the BoC rate. When the Bank cuts, prime typically falls and borrowers with variable-rate products see immediate relief. If your variable mortgage uses a floating interest rate with payments that adjust, your monthly payment should drop. If you have a variable rate but fixed payments, the monthly amount may stay the same while a larger portion goes toward principal rather than interest—speeding up amortization.

With rates on a downward path, variable-rate products become more attractive to borrowers who can tolerate some interest-rate volatility and expect rates to decline further. For shoppers or those nearing renewal, variable options may offer savings compared with current fixed-term offers, depending on risk tolerance and market expectations.

The impact on fixed-rate mortgages

Fixed mortgage rates are tied more closely to bond yields than the BoC’s policy rate. When bond yields fall, lenders can afford to offer lower fixed rates. In the days leading up to the December cut, five-year Government of Canada yields eased from roughly 3% to the 2.8% range, and lenders typically pass some of that easing on to borrowers. That means modest discounts on fixed-term rates may be available, which is good news if you’re planning to lock in a rate.

To compare current fixed and variable offers, check mortgage rate tables and calculators from reputable sources before locking in a term.

What does this mean for the housing market?

Lower borrowing costs are already encouraging buyers back into the market after a generally subdued year. National home sales surged by about 30% in October, and real estate boards expect the recent rate ease to sustain demand. With new mortgage rules easing borrowing conditions for first-time buyers and insured borrowers coming into effect on the 15th, selling and buying activity may pick up in the new year—potentially producing a strong spring market.

Higher demand, combined with constrained supply in many regions, makes it likely that home prices will rise. For example, Royal LePage has forecasted a potential increase in Toronto-area prices of roughly 5% to an average near $1.22 million by the end of next year. Homebuyers and sellers should monitor local market conditions and affordability trends closely.

What does the rate cut mean if you’re an investor?

Lower interest rates typically benefit companies by reducing borrowing costs, which can help equity markets. However, Governor Macklem’s signal that future cuts will be more gradual weighed on investor sentiment. Futures on the TSX fell the morning after the announcement despite earlier gains.

Markets are also sensitive to U.S. inflation data released the same day: the U.S. Consumer Price Index rose slightly to 2.7% from 2.6%, suggesting inflation remains sticky south of the border. That increases the chance the U.S. Federal Reserve will delay rate cuts, keeping global interest-rate uncertainty elevated and tempering investor optimism.

What does the rate cut mean for your savings?

While borrowers gain from lower rates, savers typically see returns fall. High-interest savings accounts (HISAs) and guaranteed investment certificates (GICs) are tied to prime and broader rate trends, so this cut will likely reduce yields on these products. If you’re shopping for HISAs or GICs, consider locking a competitive rate soon—further cuts could push returns lower.

Read more about interest rates:

• The best variable mortgage rates in Canada
• The best GIC rates in Canada
• Bonds vs. GICs: where to invest fixed-income dollars