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?
Expected predictions had the overnight lending rate between 3.75% – 4.00%, today’s announcement ended on the lower end of that range with the overnight lending rate has increased to 3.75 percent, up from 3.25 percent since September 2022. The Bank of Canada is continuing its quantitative tightening (QT) policy that began at the end of April.
What Information did the Bank Share about the Economy?
- Global inflation remains high as we continue to see supply disruptions and increased commodity prices such as energy. We have seen these prices forced upwards by Russia’s continued attacks on Ukraine.
- Based on the factors above, the Bank is predicting global growth to slow from 3 percent in 2022 to 1½ percent in 2023. From there, global growth will return to 2½ percent in 2024. These current forecasts indicate slower growth than what was original predicted in the Bank’s July Monetary Policy Report (MPR)
- As higher interest rates continue to effect on the economy, the Bank is projecting that GDP growth will slow from 3¼ percent this year to just under 1 percent next year and 2 percent in 2024
- Falling gas prices over the past three months has caused CPI inflation to drop from 8.1 percent to 6.9 percent. However, two-thirds of CPI components saw a 5 percent increase this year.
- There has been no evidence in the Bank’s measures of core inflation that price pressures are easing, resulting in the expectation that inflation will remain high in the short-term.
- Once higher interest rates work to rebalance supply and demand, and other economic factors such as global supply disruptions fade, the Bank is expecting that CPI inflation will begin to ease.
- CPI inflation should be returning to its target of 2 percent by the end of 2024.
How does this Impact Me?
- Variable rate mortgage holders can expect an immediate increase to the prime rate offered by your lender. Depending on your mortgage, this may increase your mortgage payments or decrease the amount of your payment that goes toward the principal balance of your mortgage.
- Supply for goods and services in Canada remains higher than demand, causing continued pressure on inflation.
- Labour markets remain tight as many businesses continue to experience widespread labour shortages.
- In the housing markets, we are seeing a strong decline in activity largely because of prior rate increases by the Bank. International demand is slowing down and households and businesses are spending less.
Will there be any Interest Rate Changes in the Near Future?
The final rate announcement of 2022 will be published on December 7, 2022 with interest rates expected to increase even further at that time. Three factors will affect future rate increases by the Bank: assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. The Bank is continuing its quantitative tightening measures as the policy rate increases. The Bank remains committed to restoring price stability and will continue to take action in order to achieve the inflation target of 2 percent.