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?
Canada’s central bank opted to hold its benchmark rate steady at 5 percent today. The quantitative tightening policy also remains in place.
What Information did the Bank Share about the Economy?
- Inflation in Canada remains elevated, having moved up from 2.8 percent in June to 3.3 percent in July. The spike in inflation is expected to linger in the short-term due to a recent spike in gasoline prices.
- There was a decrease in global growth in quarter two of this year. Canada’s growth contracted by 0.2 percent – a necessary decrease toward relieving pressure on prices.
- Consumption growth, housing activity, and household credit growth have all declined in Canada. Wildfires across the country have also contributed to the national decline in economic growth.
- Wage growth has remained between 4 and 5 percent despite the softening labour market.
- The recent rise in global bond yields is attributed to high oil prices and increased real interest rates (interest rates adjusted to remove the effects of inflation).
- Measures of core inflation suggest little downward pressure in recent months. The bank remains committed to achieving its 2 percent target, citing the possibility of additional increases in the future to mitigate inflationary pressures.
How does this Impact Me?
- If you’re a variable rate mortgage holder, your interest rate won’t increase as a result of today’s announcement.
- Canada’s labour market is softening, meaning that the demand for labour is decreasing. While this generally means less favourable conditions for candidates, it is a necessary shift in terms of getting inflation closer to the banks 2 percent target.
- Fixed-rate mortgage holders will want to pay attention to rising bond yields, one of the main drivers for fixed mortgage rates.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be made on October 25, 2023, alongside the release of the next Monetary Policy Report. The bank is prepared for an additional rate hike at that time should indicators suggest an increase is necessary to relieve upward pressure on inflation. The majority of economists predict that the rate will remain at 5 percent until March 2024, with some projecting one more rate increase before that time.
