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 increased the overnight lending rate to 5 percent today, a rate not seen since 2001. The central Bank has also opted to maintain its policy of quantitative tightening.
What Information did the Bank Share about the Economy?
- Economic growth has been stronger than anticipated, both in Canada and on a global scale.
- Growth is expected to slow down to approximately 1 percent through the remainder of this year and the first half of 2024.
- The global economy is expected to grow by 2.8 percent in 2023, 2.4 percent in 2024, and 2.7 percent in 2025.
- Canadian inflation softened to 3.4 percent in May of this year, a significant decrease in comparison with the 8.1 percent seen in the summer of 2022.
- CPI Inflation is projected to stay near 3 percent until mid 2025.
- Canadian wage growth has been hovering between 4 to 5 percent.
How does this Impact Me?
Variable rate mortgages are likely to increase following today’s announcement.
Fixed interest rates continue to be on the rise, with five-year bond yields nearing 4 percent.
There has been an increase in housing market activity, with upward pressure on prices.
Businesses surveyed by the Bank of Canada are reporting a higher frequency of price increases than usual.
Some economists are anticipating a recession to begin in late 2023. This would eventually drive down mortgage rates as we see decreased consumer spending and a slowdown in the economy.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be announced on September 6, 2023. Rates are expected to remain steady for the remainder of 2023, with decreases projected to begin in the latter half of 2024.