As expected, the Bank of Canada announced it would hold its key interest rate at 4.50% today, opting to pause and further assess the effects of previous hikes on the economy. This is the first time since the increases began a year ago, back on March 2, 2022. This also means that most lenders Prime Rate will remain at 6.70%.
March 8, 2023 – Ottawa, Ontario
The Bank of Canada today held its target for the overnight rate at 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%. The Bank is also continuing its policy of quantitative tightening.
Global economic developments have evolved broadly in line with the outlook in the January Monetary Policy Report (MPR). Global growth continues to slow, and inflation, while still too high, is coming down due primarily to lower energy prices. In the United States and Europe, near-term outlooks for growth and inflation are both somewhat higher than expected in January. In particular, labour markets remain tight, and elevated core inflation is persisting. Growth in China is rebounding in the first quarter. Commodity prices have evolved roughly in line with the Bank’s expectations, but the strength of China’s recovery and the impact of Russia’s war in Ukraine remain key sources of upside risk. Financial conditions have tightened since January, and the US dollar has strengthened.
In Canada, economic growth came in flat in the fourth quarter of 2022, lower than the Bank projected. With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.
The labour market remains very tight. Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated. Wages continue to grow at 4% to 5%, while productivity has declined in recent quarters.
Reminder #1: At the Bank of Canada, the primary tool used to control inflation is the target for the overnight rate—also called the policy interest rate. This is the starting point for setting many of the interest rates in the economy that matter for Canadians.
Reminder #2: The Consumer Price Index (CPI) represents changes in prices as experienced by Canadian consumers. It measures price change by comparing, through time, the cost of a fixed basket of goods and services.
Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year. Year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.
At its January decision, the Governing Council indicated that it expected to hold the policy interest rate at its current level, conditional on economic developments evolving broadly in line with the MPR outlook. Based on its assessment of recent data, Governing Council decided to maintain the policy rate at 4½%. Quantitative tightening is complementing this restrictive stance. Governing Council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.
Source: Bank of Canada
So what’s Benchmark’s view on today’s press release? The Bank of Canada did indicate this is still a conditional pause. It’s importnat to be mindful of the fact that The Bank of Canada wants to see further decreases to inflation and spending and is ‘prepared to increase the policy rate further if needed to return inflation to the 2% target.’
What does this mean for you?
- If you’re coming up for renewal in 2023, let’s talk now. Many homeowners are experiencing payment shock at renewal with rates doubling from their previous term. Let’s crunch the numbers as soon as possible to ensure you’re prepared and we can make a change when the timing is right.
- Some lenders also have early renewal options without penalties and we can secure rates and plan your renewal now. There may also be an options to pay off any high interest debts or extend your amortization to ensure the most cost-effective payments for your next term.
- Considering a purchase in 2023? It’s still a great time to buy. Securing a pre-approval now will hold your rate for up to 120 days. This means you have the lowest rate currently available and if rates decline further before you purchase, we can update your pre-approval. Should rates go higher, before you purchase, you’ll be assured the lower locked-in rate.
- Experiencing budget crunch? Whether you’re in a fixed, adjustable, or variable mortgage, the rising cost of living is affecting all Canadians. There may be options to improve your cash flow.