What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BOC) makes a scheduled announcement about their benchmark lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financial lenders. For more information, take a look at our blog post breaking down four of the most frequently asked questions regarding the BOC.
Were there any Changes to the Interest Rate?
The Bank of Canada announced that there will be no change to its policy interest rate today. Holding steady at 5 percent, the bank has cited that it is looking to see persistence in the recent downward trend of both core and CPI inflation before a rate decrease will be considered. Quantitative tightening policy also remains in place.
What Information did the Bank Share about the Economy?
Canadian Economy
- The Canadian economy is currently sitting in a state of excess supply, following weakened growth in the latter half of 2023. The excess supply is expected to absorb in 2025 and 2026.
- The labour market continues to soften, with employment growth failing to keep pace with the working-age population. The unemployment rate reached 6.1 percent in March 2024, and indicators suggest that wage pressures are easing.
- Economic growth is projected to increase in 2024 due to population growth and consumer spending.
- Demand for housing remains elevated and residential investment continues to increase.
- Business investment is expected to rebound, with exports anticipated to grow throughout the year.
- The bank projects GDP growth of 1.5 percent in 2024, 2.2 percent in 2025, and 1.9 percent in 2026.
- CPI inflation is expected to remain close to 3 percent in the first half of 2024, dropping below 2.5 percent in the latter half of the year. The 2 percent target is expected to be met in 2025.
- Core inflation hit just over 3 percent in February, however recent data indicate a trend of decreasing momentum.
Global Economy
- The global economy is expected to maintain a growth rate of around 3 percent, with inflation in most developed countries gradually decreasing.
- Growth in the US economy has been particularly strong, bolstered by consumption and healthy business and government spending.
- Global oil prices have risen, averaging about $5 more than projected in January’s Monetary Policy Report.
- The bank has adjusted its projections for GDP growth to 2.75 percent in 2024 and close to 3 percent for 2025 and 2026. Inflationary targets are expected to be met in 2025.
How does this Impact Me?
- For Canadians with variable-rate mortgages, lines of credit, or other loans linked to the prime rate, there will be no change to your payment as a result of today’s announcement.
- Canadian economists continue to predict decreases to the overnight lending rate as early as June 2024, which would decrease borrowing costs for variable rate mortgage and loan holders.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on June 5, 2024, with the first decrease of the year widely expected at that time. The central bank is largely focused on inflation, supply and demand, wage growth, and corporate pricing behaviour as determining factors towards future rate decreases.
