Bank of Canada Holds Rates Steady at 5% Amid Economic Slowdown

As expected, the Bank of Canada has decided to maintain its benchmark interest rate at 5%, marking the second consecutive time it has done so. This decision suggests a potential pause in the Central Bank’s tightening of borrowing costs after raising rates ten times in the past year. The move aligns with recent economic data, indicating a slowdown in the Canadian economy.

The Bank is continuing its policy of quantitative tightening. Globally, the economy is slowing, with forecasts indicating slower growth due to previous policy rate increases and rising global bond yields. The Bank projects global GDP growth of 2.9% in 2023, 2.3% in 2024 and 2.6% in 2025. In Canada, the impact of previous interest rate hikes is being felt in economic activity, particularly in housing, durable goods and services. Economic growth is expected to remain weak in the near term before improving in late 2024 and 2025.

Inflation has been volatile, and while higher interest rates are moderating inflation some sectors, like housing costs, remain high. The Bank expects inflation to average about 3.5% in the near term before gradually easing to 2% in 2025. It is committed to restoring price stability and is prepared to raise rates further, if needed, as it monitors various economic indicators.

While the Bank left the door open for another rate hike, investors believe it’s unlikely. For homeowners, these rate hikes have resulted in higher mortgage costs, impacting their finances and leading to cost-cutting measures in discretionary spending.

In summary, the Bank of Canada is keeping interest rates steady as the economy slows, with the possibility of further rate hikes, although their likelihood remains uncertain. This decision has a significant impact on homeowners grappling with increased borrowing costs.

For more details on the Bank of Canada’s decision and a deeper insight into their monetary policy, you can refer to the official Bank of Canada press release, accessible through this link. Additionally, you can watch a replay of the comments from the Bank’s governor, Tiff Macklem, where he discusses the recent announcement and its implications, here. As always, if you have any questions about how this rate pause may impact your portfolio, please do not hesitate to contact us.

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.

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