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 a continued hold of the overnight rate at 4.5 percent. The Bank is maintaining its policy of quantitative tightening in efforts to return inflation to the targeted 2% by end of 2024.
What Information did the Bank Share about the Economy?
- Global economic growth has been stronger than forecasted, however it is expected to weaken again as tighter monetary policy will weave through the economy. Stress in the United States banking sector has further impacted the tightening of credit conditions. Growth for the US is expected to slow considerably in the next few months, with weakness in sectors that are important for Canadian exports.
- Economic growth in the first quarter has been stronger than projected in January with and increase to exports and solid consumption growth. Commodity prices are similar to their January levels.
- In the Monetary Policy Report also released today, the Bank said it expects CPI inflation to fall from its current level of 5.2% to around 3% by the middle of this year. GDP growth is expected to be just 1.4% this year and 1.3% in 2024.
- While Canada is still experiencing a tightened labour market, there is suggestion that acute labour shortages will begin to ease. However, wage growth is elevated relative to productivity growth.
How does this Impact Me?
- Rates for variable rate mortgages will not increase as a result of today’s announcement.
- The restrictive monetary policy is working its way through more households as mortgage terms come due to renew into much higher rates. The housing market remains softer than what Canadians are accustomed to.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be on Wednesday, June 7, 2023. The Bank is dedicated to restoring price stability for Canadians. Governing Council is assessing the monetary policy to ensure it is enough to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target.
