Earlier this year we expected a .25% increase at the January announcement and saw exactly that. This next rate announcement is expected to not increase or decrease. After 8 consecutive rate hikes over the past year, the Bank of Canada is expected to leave rates unchanged. The Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.
This morning, March 8th, it was announced exactly what was widely expected by economists. They have decided to hold the rate at 4.5% for the first time in a year, while reiterating its wait-and-see approach. The Bank of Canada says it still expects the annual inflation rate to fall to around 2-3% by mid-year.
Which leads economists to question what is going to happen after the March announcement.
“The U.S. Federal Reserve is probably going to be tightening at least two more times, if not more. For the Bank of Canada, if inflation remains sticky and if the economy does not break down, are they going to be able to sit there with the policy rates they have and pause as they suggested?” said Robert Kavcic, director and senior economist at BMO Capital Markets.
Since March of last year, the bank has raised its rate from near- 0% to 4.5%, the highest it’s been since 2007. Making it the fastest rate tightening cycle in its history, in hopes of tamping down on inflation. Although they announced this pause in rate hikes, they stressed it was conditional, making it clear that they will be ready to raise interest rates further if inflation doesn’t come down quickly enough.
“They wouldn’t want to announce a pause and then immediately not go through with (it),” said Karyne Charbonneau, CIBC’s executive director of economics.
Most recent inflation data suggests that the country is inching closer to normal price growth. Canada’s annual inflation rate slowed to 5.9% in January, down from its peak of 8.1% it reached last summer. With interest rates now at a 16-year high, most economists anticipate a mild recession sometime this year.
The market is a little volatile so our advice is that anyone shopping for a home currently, should get a pre-approval to hold today’s rate for up to 120 days. This will allow you to secure today’s rate, and if rates were to drop any further, you will still be eligible for lower interest rates. Don’t hesitate to reach out to us at Primex if you have any questions or concerns regarding your mortgage.
Trish & The Primex Team