The Bank of Canada dropped the news today – no change in the key overnight interest rate, still holding strong at 5%. This keeps the prime lending rate at a steady 7.2% four times in a row. Now, let’s dive into the top contributors to this decision.
In Canada, the CPI inflation wrapped up the year at 3.4%, and surprise, surprise – shelter costs are the big players in keeping inflation above target.
Now, on to the economic scene – things have paused since mid-2023, and we’re looking at growth hanging around zero until the first quarter of 2024. People are cutting back on spending due to higher prices and interest rates, and businesses are feeling the pinch. The slow growth is bringing supply and demand into balance. Job vacancies are back to pre-pandemic levels, but job creation is slower than population growth. Oh, and wages are still on the rise.
What’s on the horizon? The Bank of Canada predicts inflation will stay at around 3% in the first half of the year before mellowing out and hitting the 2% target by 2025. Economic growth is expected to pick up around mid-2024.
Tiff Macklem, the big boss – Governor of the Bank of Canada, said that they’re figuring out how long they should keep the “current restrictive stance.” If things go as planned, he doesn’t see interest rate hikes on the horizon, but they’re not ruling out more if inflation acts up. The Bank is now “confident enough” that inflation is on the right track and not to dwell on rate hike risk any longer.
Now, what does this mean for us Canadians? Well, the Bank of Canada’s rate announcements affect how much we pay on variable-rate loans and mortgages. Although our payments will not change this time, we will hopefully see them lower if rates go down. Do you have questions about your variable rate mortgage? Hit me up, and let’s figure out the best move for you.
Mark your calendars for March 6, 2024 – that’s when the next overnight rate target announcement is coming our way. Check out the Bank of Canada’s January 24, 2024 rate announcement for the nitty-gritty details!