Just six days away from Halloween, today the Bank of Canada has announced it is maintaining the current policy rate at five percent and will hold off on further interest rate increases – for now. While this might seem like a welcomed treat for many Canadians, it’s crucial for homeowners to understand the full implications of today’s press release.
But first, here are some interesting items to note:
- The Bank of Canada now paused rate hikes after September inflation cooled but borrowers should be prepared for “higher for longer” interest rates.
- Bond yields remain stubbornly high despite cooling inflation which is having an impact on fixed mortgage rates.
- Demand for housing remains very robust in Alberta, driven by strong population growth.
- The economy in B.C. remains resilient even if it’s showing signs of cooling with home prices losing momentum as market tilts back towards buyers’ territory.
- Deep-discounted fixed mortgage rates continue to drift higher and are now closing in on 6%
After a series of spine-chilling rate hikes, many were bracing for another increase. However, many remained hopeful the Bank of Canada would hold its target for the overnight rate since the Consumer Price Index (CPI) came in at 3.8% in September, down from a 4.0% gain in August. But don’t let this pause trick you into complacency. The Bank’s decision to maintain their policy rate is not a guarantee against future increases. In fact, financial analysts are predicting that more rate hikes could be lurking just around the corner.
So, what does today’s Bank of Canada announcement mean for you, the savvy homebuyer or homeowner?
Now is the perfect time to reassess your mortgage strategy. If you’ve been considering locking in a fixed-rate mortgage, this could be a window of opportunity. Alternatively, if you’re on an adjustable or variable rate, this “treat” from the Bank of Canada gives you a little breathing room to evaluate your options.
In today’s unpredictable financial landscape, the only way to avoid getting spooked is to be prepared. Our team at Benchmark Mortgages has the experience and insights you need to navigate these murky waters with confidence.
Let’s turn this season of uncertainty into a harvest of opportunity. Reach out to us for a stress-free, comprehensive consultation, and let’s put you on the path to financial stability, no tricks—just treats.
Monetary Policy Report – October 2023:Higher interest rates are working to ease price pressures in Canada and inflation is coming down, though progress to the 2% target is slow. The Bank projects that inflation will stay around 3½% until the middle of 2024, returning to target in 2025. Read the full report HERE
Press release | Ottawa, Ontario: Bank of Canada maintains policy rate, continues quantitative tightening: October 25, 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.
The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty.
In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada’s population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth and job vacancies have continued to ease. However, the labour market remains on the tight side and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance.
After averaging 1% over the past year, economic growth is expected to continue to be weak for the next year before increasing in late 2024 and through 2025. The near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent pickup is driven by household spending as well as stronger exports and business investment in response to improving foreign demand. Spending by governments contributes materially to growth over the forecast horizon. Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025.
CPI inflation has been volatile in recent months—2.8% in June, 4.0% in August, and 3.8% in September. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behaviour are normalizing only gradually, and wages are still growing around 4% to 5%. The Bank’s preferred measures of core inflation show little downward momentum.
In the Bank’s October projection, CPI inflation is expected to average about 3½% through the middle of next year before gradually easing to 2% in 2025. Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation.
With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. 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, December 6, 2023. Sources: Bank of Canada, Mortgage Professionals Canada, and Statistics Canada
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