The Bank of Canada (BoC) has lowered its key interest rate to 4.50 per cent, its second rate cut of the year.

Last month, the bank dropped the interest rate from a longstanding 5 per cent to 4.75 per cent.

That move was the first in more than four years, following six rate holds.

"While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually. In the United States, the anticipated economic slowdown is materializing, with consumption growth moderating, US inflation looks to have resumed its downward path," the BoC said in its interest rate commentary Wednesday.

"In the euro area, growth is picking up following a weak 2023. China's economy is growing modestly, with weak domestic demand partially offset by strong exports. Global financial conditions have eased, with lower bond yields, buoyant equity prices, and robust corporate debt issuance," it continued.

"The Canadian dollar has been relatively stable, and oil prices are around the levels assumed in April’s Monetary Policy Report (MPR)."

Bank of Canada reduces policy rate by 25 basis points to 4½%https://t.co/rKj3xkejqF#economy #cdnecon

— Bank of Canada (@bankofcanada) July 24, 2024

In a report published in January, Oxford Economics researchers said they believed the 5 per cent key rate would be held until mid-2024 when the BoC would trigger a cycle that lowers it. And that’s precisely what happened.

Wednesday's announcement is in line with market predictions.

Canada is quickly moving towards its target of a 2 per cent Consumer Price Index, with a 2.7 per cent rise in June. Promising inflation data from the U.S. also supported the possibility of another cut.

How this BoC rate cut affects homeowners

With today's 25-basis-point decrease, here's what happens to a hypothetical homeowner, per Ratehub.ca's calculations.

This homeowner put a 10 per cent down payment on a $696,179 home (CREA average for June prices) with a five-year variable rate of 5.70 per cent amortized over 25 years (total mortgage amount of $645,984). They have a monthly mortgage payment of $4,019.

With the new 4.50 per cent key interest rate, their variable mortgage rate will decrease to 5.45 per cent, and their monthly payment will decrease to $3,924.

This means that, according to Ratehub.ca's mortgage payment calculator, the homeowner will pay $95 less per month or $1,140 less per year on their mortgage payments.