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 maintained its key interest rate at 5 percent today. The central bank has also opted to continue its quantitative tightening policy.
What Information did the Bank Share about the Economy?
Canadian Economy
- Past increases to the overnight lending rate are slowing economic activity on a national scale. The bank notes a decrease in both consumption and housing market activity.
- The recent rise in Canada’s population is easing the labour market in some sectors, however the market remains tight with lingering pressures on wages.
- Wage growth continues to average between 4 and 5 percent.
- Recent data suggest that supply and demand are stabilizing.
- Growth in the Canadian economy has averaged 1 percent over the past year and is expected to remain slow through the majority of 2024.
- The bank projects economic growth of 1.2 percent in 2023, 0.9 percent in 2024, and 2.5 percent in 2025.
- Recent instability saw CPI inflation hit 2.8 percent in June, 4.0 percent in August, and 3.8 percent in September. It is expected to average 3.5 percent over the next year, before reaching its 2 percent target in 2025.
- High interest rates appear to be alleviating inflation in goods and services. A recent decrease in food inflation has been noted, however rent and housing costs remain elevated.
Global Economy
- Global economic growth is slowing and is expected to moderate further in the near-term.
- The recent decrease in demand is attributed to past interest rate hikes and a recent spike in bond yields.
- Global GDP growth is expected to reach 2.9 percent this year, 2.3 percent in 2024 and 2.6 percent in 2025.
- Inflation is also easing globally, with supply bottlenecks beginning to resolve. However, measures of underlying inflation persist, and the recent Israel-Gaza war is creating new political uncertainty.
How does this Impact Me?
- Banks and lenders are not likely to increase their prime rate due to today’s announcement.
- Oil prices are currently higher than expected and may spike further depending on how the Israel-Gaza war develops.
- Bond yields are a significant factor in determining fixed mortgage rates. If the recent spike in bond yields persists, there may be further increases to fixed rates.
Will there be any Interest Rate Changes in the Near Future?
The final rate announcement of 2023 will take place on December 6, with most industry professionals expecting no change at that time. The bank has cited inflationary risks and slow headway toward price stability as the main concerns for further rate hikes in the near-term.
