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 no change to its overnight lending rate today. Currently sitting at 5 percent, the bank’s key rate is expected to gradually decline beginning in 2024. Bank of Canada governor, Tiff Macklem, noted that the conversation has shifted from ‘how high does the key rate need to rise’ to ‘how long does the current rate need to remain in place.’ The bank has also opted to continue its policy of quantitative tightening.
What Information did the Bank Share about the Economy?
Canadian Economy
- CPI inflation was at 3.4 percent at the end of 2023, largely due to higher shelter costs.
- Inflation is expected to gradually decline throughout 2024, remaining near 3 percent in the first half of the year.
- The bank projects that the economy will reach the 2 percent target for inflation in 2025.
- No growth in the Canadian economy is expected in quarter one of 2024.
- GDP growth is projected to hit 0.8 percent overall this year, increasing to 2.4 percent in 2025.
- Consumer spending has decreased due to higher interest rates and prices.
- Investment in Canadian business has also declined.
- The economy is currently operating in moderate excess supply due to the recent lack of growth.
- Job vacancies are close to pre-pandemic levels, with wage growth still averaging between 4 and 5 percent.
Global Economy
- Oil prices are nearing $10 per barrel less than was projected in October’s Monetary Policy Report (MPR).
- Global GDP is forecasted to grow by 2.5 percent in 2024, and 2.75 percent in 2025.
- Inflation is expected to ease in most advanced economies as a result of weaker growth.
- Central bank targets for inflation will most likely be reached in 2025.
- Growth and inflation continue to ease on a global scale.
- Recent US growth has been unexpectedly strong; however, it is expected to slow throughout 2024.
- Global financial conditions have eased, counteracting the economic tightening recorded in fall of 2023.
How does this Impact Me?
- There will be no increase to variable rate mortgage payments as a result of today’s announcement.
- Canadian economists continue to predict decreases to the overnight lending rate in 2024, which would decrease mortgage payments for variable rate mortgage holders.
- Excess supply in the economy may bring down prices of some consumer goods and services.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on March 6, 2024. With the central bank citing ongoing concerns around underlying inflation, rates will likely hold steady until these core measures begin to show sustained decreases. Some industry professionals expect rates to start decreasing in mid-2024.
