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 overnight lending rate has increased to 0.5%, with the Bank Rate at 0.75 percent, and the deposit rate at 0.5 percent. The Bank of Canada is continuing its reinvestment phase and keeping its overall holdings of Government of Canada bonds constant for the time being.
What Information did the Bank Share about the Economy?
- Due to the unfortunate situation that is currently happening in Ukraine, there is much uncertainty around the world. This has caused a rise in oil prices as well as the prices of other commodities. There has been an increase in volatility in the financial markets, and the ambiguity around the situation may impact growth around the world.
- Some of the supply bottlenecks around the world have eased slightly, but they still remain a challenge.
- Canada’s economic growth in the fourth quarter of 2021 was greater than the Bank’s initial projections at 6.7 percent. This aligns with reports that some economic slack has been absorbed.
- The Omicron variant has caused another set back to the labour market in Canada as we continue to see temporary layoffs and employee absenteeism.
- However, recovery from Omicron now seems to be in full-force. Economies around the world are progressing out of the impacts of Omicron more quickly than expected. With the lifting of many public health restrictions, household spending is expected to continue strengthening.
- All measures of core inflation have risen. CPI inflation has remained above the Bank’s target range at 5.1%. This matches January’s projections.
How does this Impact Me?
- Following today’s announcement, your lender is likely to increase the interest rate for your variable rate mortgage. Depending on your mortgage, this means that your payments may increase, or the amount that goes towards the principal payment on your mortgage may decrease.
- The increase in rates may also affect both personal lines of credit and those secured against your property.
- An increase in housing market activity is putting additional pressure on housing prices.
- Inflation is now expected to be higher in the short-term than initially projected at the beginning of 2022.
- Having inflation consistently elevated can cause long-run inflation expectations to rise. In order to keep inflation expectations well-anchored, the Bank will continue to use their monetary policy tools to return inflation to the 2 percent target.
- The situation in Ukraine is putting driving up energy prices as well as prices of food-related commodities.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be published on April 13, 2022 with interest rates expected to increase even further at that time. The Governing Council will be determining when to end the reinvestment phase and allow its holdings of Government bonds to shrink. Additional increases to the policy interest rate can be attributed to Quantitative Tightening (QT). The Bank continues its commitment to achieving its 2 percent inflation target, and will guide its policy rate based on continuous assessments of the economy.