Analyzing The Bank of Canada’s
Interest Rate Decision Today
In its first announcement of the year, the Bank of Canada has decided to keep its policy rate unchanged, marking the fourth consecutive time it has done so. The bank’s overnight rate, which leads variable mortgage rates in Canada, will remain at its current level of 5.0%. This decision was widely anticipated by markets, with many economists predicting no movement by the Bank in January.
Inflation and Economic Growth
The central bank continues to express concern over inflation risks and the persistence of underlying inflation. Canada’s annual inflation rate has seen a significant decrease from a 39-year high of 8.1% in June 2022 to 3.4% at the last reading. Despite this, forecasts predict the economy will grow at a rate of just 0.3% in the first quarter of this year.
This decision to hold rates steady is seen as a response to the current economic climate, where inflation risks are high but the economy is predicted to grow at a slow pace. The Bank is clearly trying to strike a balance between supporting economic growth and keeping inflation in check.
During the recent health crisis, the central bank kept its trendsetting rate at a rock-bottom 0.25%, but began hiking rates in March 2022 as inflation continued to spike. That rate has since jumped by 475 basis points (4.75%). Last January, the Bank declared a “conditional pause” on interest rate hikes, an announcement that spurred an unexpected housing market resurgence and inflation uptick in the spring.
Impact on the Housing Market
The bank’s interest rate influences the cost of debt for Canadians taking out variable-rate loans, lines of credits and variable-rate mortgages, and can also affect the interest rates on some savings accounts. The central bank last raised interest rates in July 2023. Mortgage servicing costs increased by 28.6% on a year-over-year basis in December, according to Statistics Canada. This has been cited as a cause for concern by leading economists, with a glut of mortgages up for renewal between now and 2026 at significantly higher rates than before.
The housing market has been particularly affected by these interest rate decisions. The Bank’s decision to hold rates steady could have implications for borrowers. With mortgage servicing costs on the rise, homeowners may find themselves paying more on their mortgages, while potential buyers may be deterred by the higher costs of borrowing.
The next announcement from the Bank of Canada is scheduled for March 6. Market observers will be closely watching the Bank’s language to pick up possible clues on when rates could be on the way down. The Bank of Canada has announced changes to its procedures for communicating monetary policy decisions, which will take effect in 2024. The Bank has reconfirmed the scheduled interest rate announcement dates for the remainder of this year.
The bank’s governor, Tiff Macklem, said that the current monetary policy is working to relieve price pressures and “that we need to stay the course.” Macklem said the governing council at the bank is shifting its focus. The most prominent offender remains to be housing, according to the governor. He said shelter services continue to see high inflation, as much as seven percent in some cases, because of rising interest mortgage costs, higher rents and other housing costs. Macklem suggests that the path back to two per cent inflation will be slow, with risks along the way.
Bank of Canada’s 2024 Schedule
The Bank of Canada has published its 2024 schedule for policy interest rate announcements and the release of the quarterly Monetary Policy Report. The scheduled dates for the interest rate announcements for 2024 are as follows:
- Wednesday, January 24
- Wednesday, March 6
- Wednesday, April 10
- Wednesday, June 5
- Wednesday, July 24
- Wednesday, September 4
- Wednesday, October 23
- Wednesday, December 11
The Monetary Policy Report will be published concurrently with the January, April, July, and October rate announcements. The Bank also published its schedule for the release of the Business Outlook Survey and the Canadian Survey of Consumer Expectations, and the Financial System Review. The scheduled dates for the release of the 2024 issues of the Business Outlook Survey and the Canadian Survey of Consumer Expectations are as follows:
- Monday, January 15
- Monday, April 1
- Monday, July 15
- Friday, October 11
The Financial System Review is scheduled for Thursday, May 9.
In conclusion, the Bank of Canada’s decision to hold interest rates steady reflects its cautious approach to managing the economy in the face of persistent inflation. As we look ahead, the Bank’s future decisions will continue to have significant implications for the Canadian economy and its housing market. The 2024 schedule for policy interest rate announcements and the release of the quarterly Monetary Policy Report provides a roadmap for what to expect in the coming year.
Understanding these economic indicators and their impact on your personal finances can be complex. If you have any questions or need further information, or simply want to have a conversation about mortgages, don’t hesitate to reach out to us at TheBroker.ca Ltd. You can contact us through our website or call us directly at (519) 252-9665. We are always ready to provide you with the guidance and support you need to navigate these economic changes.
Please note that this information is current as of the time of writing and is intended for general informational purposes only. It should not be relied upon as financial advice. Always consult with a mortgage professional for advice tailored to your specific circumstances.
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