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?
Although some are expecting a rate increase sooner than projected, the overnight lending rate was held steady today at 0.25 percent. As the bank continues through its reinvestment phase, it has opted to hold its target for the overnight rate at the effective lower bound of 0.25 percent.
What Information did the Bank Share about the Economy?
- The increase in consumption that promoted growth in the third-quarter was largely due to the increase in vaccination rates as well as the further easing of restrictions. Additional components of GDP were still burdened by supply bottlenecks.
- The Omicron variant of COVID-19 has triggered an increase in economic uncertainty. Subsequently, we have seen a decline in oil prices as well as increased travel restrictions for many countries. These uncertainties, along with the disastrous floods across British Columbia, may be detrimental to growth by adding even more supply chain disruptions and reducing demand for certain services.
- In the past few months, there has been considerable gains in the employment sector that have brought the employment rate back to pre-pandemic levels. Housing activity also looks to be regaining strength after a period of moderation. These factors, along with additional economic indicators, suggest that the economy has strong momentum into the fourth quarter.
- Currently, CPI inflation is elevated and the Bank is expecting it to remain heightened into the first half of 2022. The bank expects that inflation will make its way back towards 2 percent in the second half of the year. One major cause of the increase was gasoline prices, which have recently declined. There has been little change in the core measures of inflation since September.
- Continued supply disruptions paired with a strong demand for goods has caused inflation increases across many countries.As expected, Canada’s economy saw approximately 5½ percent of growth in the third quarter. This growth, along with the downward revision to the second quarter, brings the overall level of GDP to only 1½ percent below pre-pandemic levels in the last quarter of 2019.
How does this Impact Me?
- Rates for variable rate mortgages will not increase as a result of today’s announcement.
- High inflation can cause a lack of purchasing power, which can subsequently lead to a decrease in the overall standard of living for some. The bank is closely monitoring the causes of the inflation increase to ensure they are temporary and do not contribute to longer-term issues.
- If you are considering selling your home, housing activity in resales has been particularly strong.
A significant number of job vacancies can often lead employers to ramp up their hiring efforts. Canada has seen a jump in starting wages for new employees, which can be a positive for those currently looking for employment.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be published on January 26, 2022 with no change expected at that time. The Bank of Canada remains committed to holding the policy interest rate at the effective lower bound until the economic slack is absorbed. This will occur when the 2 percent inflation target is achieved. The banks projections for this remain in line with the most recent monetary policy report, which indicate a potential increase between the second and third quarters of 2022.