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 today held its target for the overnight rate at 4.5 percent. The Bank is also continuing its policy of quantitative tightening. In January, the Governing Council stated they anticipate maintaining the current policy interest rate, provided that economic developments follow the Monetary Policy Report outlook.
What Information did the Bank Share about the Economy?
- The global growth continues to slow although inflation remains elevated, it is decreasing mainly due to lower energy prices.
- Commodity prices have followed the Bank’s projected expectations, but there are still potential risks due to China’s economic recovery and Russia’s war in Ukraine.
- Canada experiences lower economic growth than originally expected in the fourth quarter of 2022. A decline in inventory investment was largely responsible for GDP not reaching expectations.
- There has been a slight slowdown in both domestic and foreign demand. This has gone hand in hand with a decrease in business investment. Ultimately, the restrictive monetary policy still has a significant impact on household spending.
- The latest data aligns with the Bank’s expectation that CPI inflation will decrease to 3 percent by mid-year. Although the yearly measured core inflation rates have slightly decreased to 5 percent, and the 3-month measurements are around 3.5 percent, both need to further decrease along with short term inflation expectations to reach the target of 2 percent.
How does this Impact Me?
- Rates for variable rate mortgages will not increase as a result of today’s announcement.
- Inflation in January was at 5.9 percent. Price increases are beginning to slow down for energy, durable goods, and some services but Canadians are still experiencing the impacts of high price increases for food and shelter.
- As the economy is projected to remain weak for the next few quarters, it is expected that there will be less pressure in the labour and product markets. This will result in slower wage growth and increase competition pressures, which will make it harder for businesses to transfer their increased costs onto consumers.
- Employment growth has continued to exceed expectations as the labour market remains very tight. This is seen through extremely low unemployment rates and elevated job vacancies.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be on April 12, 2023. The Bank remains committed to bringing prices back to a more stable level, and is prepared to increase the policy rate further in order to achieve the 2 percent inflation target. The Governing Council will continue to monitor the impacts of prior rate increases as well as the changes into the economy to determine if any further rate increases are necessary.