No Rate Increase Today!
Bank of Canada keeps the overnight rate at 5%. Which for most lenders Prime rate will remain at 7.20%.
What is the Bank of Canada Overnight Rate?
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.
The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.
Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.
Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.
Should I lock into a Fixed Rate now?
Historically variable rates have shown to save you more money in the long run.
A few things you should consider before locking into a Fixed rate is:
Are you planning to sell your home in the near future? Then we would highly recommend you stay in your variable rate mortgage.
Can your budget handle a payment increase if rates go up?
Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.
If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.
Whats to come??
Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.
Today, the Bank of Canada announced that it would maintain its overnight policy interest rate at 5.00%, stating that there is “growing evidence” that past interest rate increases are dampening economic activity and relieving price pressures.
This decision provides some comfort to borrowers who have seen their mortgage costs rise steadily since March of 2022. As for real relief – in the form of rate cuts – the Bank demurred, noting that its preferred measures of core inflation show “little downward momentum.” Consequently, the Bank said it is holding this policy rate and continuing its current policy of quantitative tightening.
We capture the Bank’s observations and its latest economic forecasts in the summary below.
Inflation facts and outlook
In Canada, inflation measured by the Consumer Price Index (“CPI”) 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
Canadian housing and economic performance
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
A 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”
Global economic performance and outlook
The global economy is slowing and growth is forecast to moderate further as past increases in policy interest 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 outlook is little changed from the Bank’s July Monetary Policy Report, 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 but underlying inflation is persisting, meaning central banks must “continue to be vigilant”
Oil prices are higher than the BoC assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty
Summary and Outlook
The BoC noted that after averaging 1% over the past year, economic growth is expected to remain “weak” for the next year before increasing in late 2024 and through 2025. Near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent economic “pickup” will be 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.
In the Bank’s October projection, CPI inflation is expected to average about 3.5% through the middle of next year before gradually easing to 2% in 2025. Inflation is expected to return to the Bank’s target about the same time as policymakers forecast in their July 2023 projection, “but the near-term path is higher because of energy prices and ongoing persistence in core inflation.”
As for what to expect going forward, the Bank had this to say about interest rates: “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.”
The message is therefore clear: the Bank wants to see downward momentum in core inflation before it changes tack, and continues to be focused on the “balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour.”
Once again, the Bank ended its communique with a familiar phrase: it remains “resolute in its commitment to restoring price stability for Canadians.”
Stay Tuned
Next Schedule Interest Rate announcements will be December 6th, 2023
