Asal Jami

The Bank of Canada lowered its key interest rate by 25 basis points on Wednesday and opened the door to bigger cuts if the economy slows more sharply in the months ahead.

The third consecutive rate cut was widely expected by economists and brings the central bank’s benchmark interest rate to 4.25 per cent.

Wednesday’s decision marks the first time since the global financial crisis in 2009 that the Bank of Canada has cut rates at three meetings in a row.

The policy rate, which widely sets the cost of borrowing across Canada and informs the rates many Canadians get on mortgages and other loans, has fallen 75 basis points since the easing cycle began in June.

“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate,” Bank of Canada governor Tiff Macklem told reporters Wednesday.

“We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time.”

Could the Bank of Canada cut by 50 basis points?

Asked Wednesday whether the central bank debated a steeper cut of half a percentage point, Macklem did not answer directly, but he did not rule out a change of pace moving forward.

“We did discuss some different scenarios. Scenarios where it might be appropriate to slow the decline in interest rates… and where it might be appropriate to cut by 50 basis points,” he said.

Macklem explained that if the economy proves stronger than anticipated and inflation more stubborn, the Bank may pause its easing cycle at a future decision. But he added that if the economy “was significantly weaker … yes, it could be appropriate to take a bigger step, something bigger than 25 basis points.”

Randall Bartlett, senior director of Canadian economics at Desjardins, told Global News Wednesday that he does not currently expect the Bank of Canada will take any oversized steps as the benchmark interest rate trends lower.

He calls for two more 25-basis-point cuts this year and six more to follow in 2025, eventually bringing the policy rate to a resting point of 2.5 per cent.

Financial markets see a 93 per cent chance of a rate cut of 25 basis points in October while a rate reduction in December is fully priced in, according to Reuters.

CIBC chief economist Avery Shenfeld echoed calls for a series of quarter-point cuts through to March 2025 in a note to clients Wednesday.

He added that moving in bigger, 50-basis-point steps would be “defensible” given the positive inflation trends of recent months, but noted that the Bank of Canada’s appetite for easing appears satiated with 25-basis-point moves.

Shenfeld noted that if inflation or jobs data comes in particularly weak over the coming months, the central bank may take oversized steps as part of a “bolder pace of easing.”

The Bank of Canada will get its next look at the labour market on Friday when Statistics Canada releases the employment data for August.

Dawn Desjardins, chief economist at Deloitte Canada, told Global News on Wednesday that the oversized steps of 50, 75 and even 100 basis points seen during the rapid tightening cycle reflected an “emergency” situation as inflation rapidly surged to levels not seen in more than 40 years.

But the situation now, with inflation gradually floating back to earth, is just telling the Bank of Canada that its policy rate doesn’t have to be as “prohibitively high” as it was during the peak of the tightening cycle.

“So do we really need to have interest rates that are really causing some friction for many households and businesses who have to finance at higher costs? I don’t think so. And I think that’s what the Bank is really saying,” she said.

Bartlett also said that Wednesday’s messaging from the Bank of Canada reflects a sense of “calm,” not a fear that the economy is heading towards a steep downturn.

“To see a 50-basis-point cut, we would need to see a material decline or softening in economic activity,” he said.

'The runway's in sight' for soft landing: Macklem

Annual inflation has continued to cool through 2024, last coming in at 2.5 per cent in July. Macklem noted on Wednesday that while shelter inflation continues to run hot, there have been signs of easing for renters as of late, as well as for Canadians renewing their mortgages as the central bank’s policy rate continues to fall.

He meanwhile acknowledged that signs of slowing in the June and July gross domestic product results mean the Bank of Canada’s calls for a pickup in third-quarter economic growth might now be ambitious. He said there are risks that uptick might be weaker than previously thought in the central bank’s latest forecasts from July.

Macklem said the Bank of Canada’s governing council would be “guided by incoming information” and the projected impacts on the inflation outlook in deciding the future path for interest rates.

 

 Some 55,000 more homes in Quebec will be in areas at risk of flooding — three times more than today — according to a new generation of flood maps coming from the provincial government.

Quebec officials released the estimates and announced the establishment of a new regulatory framework related to flood zones at a news conference Tuesday. Those new regulations will also apply to structures meant to mitigate flood risks like dikes and barriers, which are referred to in French as Ouvrages de protection contre les inondations (OPI). 

Although the new maps have yet to be produced, officials expect that nearly 77,000 homes, or two per cent of Quebec's population, could find themselves in a flood zone compared to 22,000 today.

"In certain places in Quebec, the flood zone mapping has not been updated in 30 years," Environment Minister Benoit Charette said Tuesday. "We have to update our way of doing things based on the science, and that is what we are proposing today."

Quebec isn't tracking the state of its flood protection structures. Experts see risks growing

The maps will be produced in collaboration with municipalities in the coming months and the new flood-management plan as a whole will be the subject of public consultations with residents and municipalities this summer. The plan is expected to be implemented by 2025.

Currently, Quebec's flood maps are based solely on the recurrence of floods and are divided into high-risk and low-risk areas — where there is a five per cent and one per cent chance of a flood in any given year, respectively.

What are flood maps, and why are they important?

The new maps will designate areas of "flood intensity" by taking into account the frequency of floods, the water depth reached as well as the impacts of climate change.

The flood zones will now be classified by four levels, ranging from "very high" for regions with more than a 70 per cent risk of flooding over 25 years and over 60 cm of water expected, to "weak" in areas with a seven to 20 per cent risk of flooding over 25 years and less than 30 cm of water expected.

In a statement released Monday afternoon, the Communauté métropolitaine de Montréal (CMM) — which represents 82 municipalities in the greater Montreal area — welcomed the province's plan to revamp regulations related to flood management.

However, the CMM said it is worried about the effects the new framework will have on properties located behind OPIs, especially as it affects their value.

New limitations on construction

New regulations announced Tuesday stipulate that repair and renovation work can generally proceed in flood-prone areas, but rebuilding severely damaged structures in very high-intensity flood zones may be restricted.

Expansion in very high-intensity areas will also be limited to essential needs only. Additionally, construction of new buildings in flood-prone areas, even in low-intensity sectors, will not be permitted.

However, municipalities can mitigate risks by implementing flood protection structures such as dikes, which can lead to a reclassification to a lower-intensity zone.

The flood-management plan provides for stricter guidelines for municipalities to follow in order to prevent flooding, such as maintaining and monitoring flood prevention infrastructure. 

Officials say the objective of the framework is not to relocate residents at risk, but to increase their security and protect their property as well as the environment.

Concerns regarding insurance rates

Asked about what the new flood zone maps will mean for insurance rates for affected residents, Charette said they may not have a direct impact as insurance companies generally use their own mapping criteria to assess flood risk.

In March, Desjardins Group, a major financial institution based in Quebec, announced it will no longer offer new mortgages in high-risk flood zones across the province. It also doesn't provide flood insurance in those areas.

The announcement sent shock waves through low-lying communities, from Charlevoix, north of Quebec City, to the suburban areas of Montreal.

A Quebec lender opted out of mortgages in flood zones. Experts warn it could happen elsewhere

Traditionally, it has fallen on the Quebec government to step in to help homeowners cope with the costs of flooding. 

But after 2019, when flooding forced the evacuation of more than 6,000 residents of Sainte-Marthe-sur-le-Lac, Que., and damaged hundreds of homes, the government signalled its unwillingness to pay for repeated flood damage at the same address, imposing a new lifetime cap on compensation per home and financial incentives for people to relocate from homes in high-risk zones.