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?
As expected, the Bank of Canada opted to hold their overnight lending rate at 5 percent today amid ongoing concerns about the persistence of underlying inflation. The central bank’s quantitative tightening policy also remains in place.
What Information did the Bank Share about the Economy?
Canadian Economy
- CPI inflation eased slightly in January, hitting 2.9 percent due to the moderation of pricing for consumer goods. This is, however, still well above the bank’s 2 percent target. Inflation is expected to remain near 3 percent in the short-term, easing further in the second half of 2024.
- Current inflation levels are attributed largely to shelter price inflation, which remains elevated.
- The bank’s ongoing concerns about the risks to underlying inflation have persisted, with measures of core inflation sitting between 3 and 3.5 percent.
- Governing Council is closely monitoring supply and demand, inflation outlook, wage growth, as well as corporate pricing and profit strategies in determining the right time for a rate decrease.
- The Canadian economy is currently in “modest excess supply,” with consumption up by 1 percent. Domestic demand saw a decrease due to a significant drop in business investment. However, the bank also noted a healthy boost in exports, bolstering growth.
- Predictors of wage growth are showing potential alleviation in wage pressures.
- Real GDP expanded by 1 percent in the fourth quarter of 2023, despite weak pace.
Global Economy
- Economic growth eased on a global scale in the fourth quarter of 2023.
- Inflation continues to ease, most notably in the US and the eurozone.
- Oil prices are marginally higher than projected in January’s Monetary Policy Report (MPR).
- There has been an increase in bond yields since January, and equity markets have risen strongly.
How does this Impact Me?
- There will be no increase to variable rate mortgage payments resulting from 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.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on April 10, 2024, with no change projected at that time. Many economists are expecting the first rate decrease to take place during the central Bank’s announcement on June 5, 2024.
