Fall 2023 is here and the much anticipated announcement from the Bank of Canada has been released since their last update nearly two months ago. Today the Bank of Canada announced it’s decision to pause on raising the overnight rate, keeping it at five percent. But that does not mean it’s game over on the potential for more rate increases in the near future.
But first, here are some interesting items to note:
- Some borrowers are now seeing the symbol for infinity on their mortgage statement, as the time it will take take to payoff their mortgage extends due to the higher interest rates.
- With rising mortgage rates, the monthly payment needed to buy into the market today has risen by roughly 15%, or $400, since March.
- House prices nationally remain nearly 12% below peak levels, but with notable regional variations: Greater Vancouver: -4.1% & Edmonton: -7.6%
- Home sales in Ontario and B.C. saw sales fall 5.5% and 2.6%, respectively, while more affordable Alberta saw sales jump 4%.
Also, given that the stakes on choosing the right mortgage term have never been higher, check out our latest video where we uncover the dramatic decisions facing homeowners in our latest series of ‘Asking For A Friend’! From Hollywood-style suspense to real financial impact, we’re decoding some strategies in this episode titled ‘The Term-inator’.
Press release | Ottawa, Ontario: Bank of Canada maintains policy rate, continues quantitative tightening: September 6, 2023 – The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is also continuing its policy of quantitative tightening.
Understanding quantitative tightening:
Under quantitative tightening (QT) the central bank is no longer adding to demand for bonds. As a result, bonds become cheaper and their yields increase. Because other interest rates in the economy are influenced by government bond yields, QT makes borrowing more expensive. Households and businesses therefore borrow and spend less, which eases demand in the economy, helping to soften inflation pressure. In the same way that quantitative easing (QE) sends a signal to the public about the Bank’s intention to keep its policy interest rate low for an extended period, QT indicates that interest rates are likely to rise.
Inflation in advanced economies has continued to come down, but with measures of core inflation still elevated, major central banks remain focused on restoring price stability. Global growth slowed in the second quarter of 2023, largely reflecting a significant deceleration in China. With ongoing weakness in the property sector undermining confidence, growth prospects in China have diminished. In the United States, growth was stronger than expected, led by robust consumer spending. In Europe, strength in the service sector supported growth, offsetting an ongoing contraction in manufacturing. Global bond yields have risen, reflecting higher real interest rates, and international oil prices are higher than was assumed in the July Monetary Policy Report (MPR).
The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures. Economic growth slowed sharply in the second quarter of 2023, with output contracting by 0.2% at an annualized rate. This reflected a marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country. Household credit growth slowed as the impact of higher rates restrained spending among a wider range of borrowers. Final domestic demand grew by 1% in the second quarter, supported by government spending and a boost to business investment. The tightness in the labour market has continued to ease gradually. However, wage growth has remained around 4% to 5%.
Recent CPI data indicate that inflationary pressures remain broad-based. After easing to 2.8% in June, CPI inflation moved up to 3.3% in July, averaging close to 3% in line with the Bank’s projection. With the recent increase in gasoline prices, CPI inflation is expected to be higher in the near term before easing again. Year-over-year and three-month measures of core inflation are now both running at about 3.5%, indicating there has been little recent downward momentum in underlying inflation. The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.
With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, Governing Council decided to hold the policy interest rate at 5% and continue to normalize the Bank’s balance sheet. However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed. Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the 2% inflation target. The Bank remains resolute in its commitment to restoring price stability for Canadians.
Mark your calendars: The next scheduled date for the Bank of Canada announcement will occur on Wednesday, October 25, 2023.
We establish meaningful long-term relationships with clients and help them achieve financial freedom faster with diverse and customized mortgage options. The term “benchmark” originates from the chiseled horizontal marks that surveyors made in stone structures as an established point of reference. Believe in Better®