As widely expected, the Bank of Canada hit pause on a year-long period of rate hikes this morning, leaving the benchmark interest rate where it sat at 4.5%. This move provides welcome relief to homeowners and aspiring homeowners and could signal the end of an aggressive quantitative tightening cycle that included eight increases to the overnight target rate between March 2022 and the bank’s last meeting in January 2023.
The news today makes the Bank of Canada (BoC) the first major central bank to put the brakes on combative interest rate rises which saw the prime rate rocket in the past year, taking variable and adjustable rate mortgage rates up with it.
Although the Canadian labour market remained resilient in January (raising concern that employment and wage growth could further fuel inflation), the BoC governor had indicated back then that they would still pause further rate increases, should economic activity be in line with their forecasts.
In their statement released today, they speak to GDP growth coming in lower than expected in the final quarter of 2022 and they’re expecting a weaker economy over the next two quarters. Inflation has come down to 5.9% from its 30-year high of 8.1% in June 2022 and with monetary policy weighing heavily on household income, restricting spending on goods and services, BoC would anticipate the pressures on the labour and product market to ease and competitive pressure between businesses to grow, making it difficult for businesses to pass any further price increases onto consumers.
The goal is to bring inflation back down to around 2% and whilst we can’t rule out further rate increases should inflation persist, the signs are good that the BoC has a good handle on what’s going on and are trying to strike a sensible balance between mild and full-on recession with their approach.
The full press release from today’s Bank of Canada announcement can be found hereand the next BoC announcement on interest rates is scheduled for April 12, 2023 so watch this space for updates.
What Does this All Mean for the Housing Market?
Today’s announcement is great news. Those who’ve been burdened with a year of rate increases on variable mortgage products will have breathed a sigh of relief.
I remain optimistic for the housing market in the coming months; prices are still more negotiable than what we’ve seen in the past two years in some cases, but holding steady for the most part and for much of the GTA.
Interest rates may start to come down towards the end of year, in which case it will drive a much hotter market with elevated competition again. In this respect, there’s little point in holding off a purchase but in the current market you will need the expertise of a seasoned realtor to ensure you secure the best deal for your budget.