After maintaining the overnight lending rate at a two-decade high of 5% for 11 months, the Bank of Canada has announced a reduction in its policy rate. In its June announcement, the central bank decreased the target for the overnight rate by 25 basis points to 4.75%.

Despite inflation being slightly above the BoC’s target rate of 2%, the total consumer price index has declined over the past year, indicating that core inflation has slowed and is expected to continue decreasing.

“Monetary policy no longer needs to be as restrictive, so we lowered the policy interest rate by 25 basis points to 4.75%,” stated Tiff Macklem, Governor of the Bank of Canada. “We’ve made significant progress in the fight against inflation. Our confidence that inflation will move closer to the 2% target has increased, which is welcome news for Canadians.”

The anticipated interest rate cut is expected to encourage many rate-sensitive homebuyers to re-enter the housing market. According to a recent Royal LePage survey conducted by Leger, 51% of Canadians who paused their home buying plans in the last two years said they would return to the market following a reduction in the Bank of Canada’s key lending rate. Specifically, 10% of respondents said a 25-basis-point drop would prompt them to resume their search, 18% would wait for a cut of 50 to 100 basis points, and 23% would need to see a cut of more than 100 basis points.

“The long-awaited cut to the overnight lending rate is here. The Bank of Canada kept its key lending rate at a two-decade high of 5% for the past 11 months, and it’s been over four years since the last rate reduction,” said Phil Soper, president and CEO of Royal LePage. “Our research shows that half of sidelined homebuyers in Canada plan to restart their home search once the bank rate begins to drop. This will likely spark activity and put upward pressure on home prices in the latter half of the year.”

The Bank of Canada’s next announcement is scheduled for Wednesday, July 24th.