Bank of Canada holds rate steady at 5%

01.25.2024 posted by: Walter Mota

January 24, 2024

With the recent report of the inflation exceeding 3%, it came as no surprise today that The Bank of Canada did what most economists were forecasting and held the overnight rate steady at 5% in the first policy decision of 2024. This extends the pause in rate hikes following the last in July to 6 months. The Bank of Canada seemed positive that the current rate would continue to correct inflation, however they required time to work. With inflation remaining sticky, as well as wage growth, any chance of an early reduction “went out the window”. In fact, many economists have now pushed back their initial forecasts from December, suggesting that any reduction in rate may not come until mid-summer, with many reports now suggesting as late as July before we start to see cuts.

There is some good news though for Canadian households as well. With the softening of the Canadian economy, almost all economists that have weighed in on the forecast of the overnight rate for 2024 agree, there’s most likely no more foreseeable rate hikes coming. This is welcome news after the 10 rate hikes that have occurred since March 2022. With inflation remaining sticky, and with the Canadian Economy shrinking by an annualized 1.1% in the 3rd quarter, the Bank of Canada has some significant work in front of them. The Bank of Canada is expecting inflation to ease, and that economic growth will be flat.

Housing costs have remained sticky as well in the face of overwhelming demand and little supply. Due to housing and food being the key indicators for propping up inflation, the expectation is that it will take time for interest rates to come down until later this year. If the rates do as are being forecast and remain steady, this could inspire confidence in the timing around purchasing and continue to keep housing prices where they are, and even potentially raise them if demand increases as a result. 

If you’re looking to make a change and are concerned about raising rates, now could be a great time to talk to your mortgage broker.