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 overnight lending rate has increased to 3¼ percent, up from 2.5 percent since July 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?
- Growth has decreased while prices have increased in global and Canadian economies due to the effects of COVID-19 outbreaks, ongoing supply disruptions and the war in Ukraine.
- Central banks around the world continue to tighten monetary policy as global inflation remains high and measures of core inflation are increasing.
- CPI inflation eased from 8.1 percent to 7.6 percent in July due to a drop in gasoline prices in Canada. Inflation excluding gasoline has increased since then and data show a further broadening of price pressures.
- Surveys suggest that expectations remain high for short-term inflation. As this continues, there is greater risk that elevated inflation becomes entrenched.
- Canada’s GDP was weaker than the Bank projected in the second quarter, only growing by 3.3 percent. Domestic demand was strong as consumption grew by 9½ percent and business investment was up by 12 percent.
- The Bank continues to expect the economy to moderate in the second half of this year, as global demand weakens and tighter monetary policy begins to bring demand in line with supply in Canada.
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.
- Prices for oil, wheat and lumber have moderated while natural gas prices have risen.
- The housing market has decreased as anticipated due to unstable growth during the pandemic and high mortgage rates.
- The labour market in Canada remains tight as the economy continues to operate in excess demand.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be published on October 26, 2022 with interest rates expected to increase even further at that time. The Bank will be assessing how much higher interest rates need to go in order to return inflation to target. The Governing Council will also continue to take the required actions to achieve the 2 percent inflation target.