On March 6th (as anticipated), the Bank of Canada has decided to hold the overnight rate @ 5%.

They continue to re-iterate that it is too early to discuss rate cuts even though CPI came in at 2.9% in January. They also reiterated its concern for risks of inflation and pledge to continue its policy of quantitative tightening.

Canadian inflation

• Shelter-price (living costs) inflation remains elevated “and is the biggest contributor to inflation” - at approximately 28%

• Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3% to 3.5% range, and the share of CPI components growing above 3% declined but is still above the historical average 

Canadian economic performance and employment

• The Canadian economy grew in the fourth quarter by more than the BoC expected, “although the pace remained weak and below potential” 

• Real GDP expanded by 1% after contracting 0.5% in the third quarter

• A strong increase in exports boosted growth

• Employment continues to grow more slowly than the population, and there are now some signs that wage pressures may be easing

Outlook

• Next interest rate announcement is April 10, 2024 – widely expected to hold again

• BoC expects inflation to “remain close to 3% during the first half of the year before gradually easing.”

• It noted that its Governing Council is still concerned about risks to the outlook for inflation, particularly “the persistence in underlying inflation.” Governing Council wants to see “further and sustained easing” in core inflation and said it continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. 

• Concerns around global risks (Red Sea shipping routes, which have impacted global shipping costs — that could feed into higher inflation if they escalate)

• "The assessment of the governing council is that we need to give higher interest rates more time to do their work," said Macklem.

• The Bank of Canada has maintained that it takes about 18 to 24 months for interest rate changes to work their way through the economy. "It would be great if this worked faster, it would be great if it was less painful. But unfortunately, monetary policy, it does work slowly," Macklem said. "It is an indirect channel. It's got to work through the economy. It takes time to do that."

• Future progress on inflation is expected to be gradual and uneven.

• After Wednesday’s decision, traders in overnight swaps pared their bets on a June rate cut. A cut is still fully priced in for the July decision, just as it was before the policy statement. 

If you have any questions regarding Mortgage interest rates, where they currently are and were they are most likely heading, please do not hesitate to reach out. Our Team is always ready to assist

Kind Regards,

Chris Gregoris