April 13, 2023

Mortgage Monitor – Interest Rate Update from April 12th 2023

Mortgage Monitor – Interest Rate Update from April 12th 2023

Share this article:

Bank of Canada maintains policy rate, continues quantitative tightening

The Bank of Canada has held its key interest rate steady and suggested that it may need to keep rates higher for longer to offset the effects of tighter borrowing conditions on the economy. The central bank also released a new economic forecast, which indicates that inflation will continue to fall in the coming months. Bank of Canada Governor Tiff Macklem said that although price growth is easing quickly and is expected to slow to about three percent this summer, the central bank’s destination is the two percent inflation target, which means several things need to happen to get inflation back on track. Inflation expectations must come down further, services price inflation and wage growth need to moderate, and corporate pricing behavior must normalize.

Economists widely expected the Bank of Canada to maintain its interest rate at 4.5 percent as inflation continues to fall meaningfully. Meanwhile, the economy is posting stronger-than-expected growth, and the labor market remains tight, both signs of a still-hot economy. The Bank of Canada expects the inflation rate to fall to three percent by mid-year and back down to two percent by the end of 2024.

Although the stronger growth did not prompt the central bank to raise rates again, Macklem said interest rates might have to stay high for longer. The governor emphasized repeatedly that inflation expectations are still a concern for the central bank, and recent surveys conducted by the Bank of Canada show consumers and businesses are still expecting inflation to remain higher than its own forecasts.

While some experts were skeptical of the Bank of Canada’s assertion that rate cuts later this year are unlikely, Laval University economics professor Stephen Gordon said he does not believe the Bank of Canada will be ready to cut rates if inflation is still above the two percent target. Since March of last year, the Bank of Canada has aggressively raised its key interest rate to stifle inflation. However, after its historic monetary policy tightening, the Bank of Canada has paused and plans to hold its key interest rate steady to allow time for the effects of higher borrowing costs to broaden out in the economy.

Looking ahead, the path back to low inflation and stronger growth in Canada relies on high interest rates working effectively. The central bank’s governing council will be closely monitoring core inflation and other indicators to determine its monetary policy moving forward. The Bank of Canada is scheduled to make its next decision on interest rates on June 12.

Get more homeowner tips

Subscribe to get more homeowner tips and advice delivered right to your inbox.


More Great Reads