The Bank of Canada has decided to keep its key interest rate at 5% for the fourth consecutive day in hopes of combating inflation.
• Also read: Mortgage rates are starting to fall. Is it now the turn of variable interest rates?
The last interest rate increase took place last July.
The Bank of Canada (BoC) says global economic expansion “continues to slow” and inflation is “gradually declining” in most global economies.
In Canada, the economy has been stagnant since mid-2023 and growth “is expected to remain near zero in the first quarter of 2024.”
“Consumers reduced spending in response to price and interest rate increases and business investment fell. Given the weak growth, supply has caught up with demand and now appears to be in slight excess,” said a press release on Wednesday.
The BoC expects economic growth to gradually restart “around mid-2024”. In the second half of the year, private household spending is expected to increase, while exports and corporate investment are expected to benefit from the recovery in external demand.
Although it decided to keep its key interest rate at 5%, the Bank of Canada said it was “concerned about the risks associated with the inflation outlook, particularly persistently high underlying inflation.”
Recall that since July 12, 2023, the Bank of Canada has decided to keep its key interest rate at 5% after two consecutive quarter-point increases. The next update will be on March 6, 2024.
Mortgage interest and housing
“The bank didn't surprise anyone by maintaining the key rate,” reacted Philippe Simard, Quebec mortgage director at Ratehub.ca, who expects the key rate cuts “to come later and be less significant than most people anticipate.”
For Mr. Simard, holders of a mortgage loan or variable rate mortgage line of credit “will be disappointed if they do not know when they can expect the first reduction in the base rate.”
He also believes that this announcement will not have a major impact on housing values. “Any hint of a rate cut by the Bank of Canada would have immediately put upward pressure on housing prices,” he said.