The Bank of Canada met on Wednesday and held the overnight rate at 4.50% and is continuing its quantitative tightening.
What does this mean?
If you have a variable or adjustable rate or HELOC product – there is no change to your rate currently. If you have a fixed rate mortgage – your payments will remain constant.
Bond Yields are high (which impacts the fixed rate environment) although slightly lower then most variables – the penalty and outlook in the rate environment will result in many individuals riding on the variable being in a better position in one year time if inflation gets to target then if they were to lock in – but there is no guarantee.
What’s going on now:
Globally:
• Global growth continues to slow, and inflation, while still too high, is coming down due primarily to lower energy prices.
• In the United States and Europe, near-term outlooks for growth and inflation are both somewhat higher than expected in January.
• Labour markets remain tight, and elevated core inflation is persisting. Growth in China is rebounding in the first quarter.
• Commodity prices have evolved roughly in line with the Bank’s expectations, but the strength of China’s recovery and the impact of Russia’s war in Ukraine remain key sources of upside risk.
• Financial conditions have tightened since January, and the US dollar has strengthened.
Nationally:
• Economic growth came in flat in the fourth quarter of 2022, lower than the Bank projected.
• With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.
• Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.
• The labour market remains very tight.
• Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.
• Wages continue to grow at 4% to 5%, while productivity has declined in recent quarters.
Where’s inflation at now? 
January 2023 – 5.9%
January 2022 – 5.1% June 2022 – 8.1%
January 2021 – 1.0% June 2021 – 3.1%
January 2020 – 2.4% June 2020 – 0.7%
January 2019 – 1.4% June 2019 – 2.0%
What’s drawing it down:
1. Lower price increases for energy, durable goods, and some services.
2. Price increases for food and shelter remain high, causing continued hardship for Canadians.
3. Weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease.
4. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.
What’s the Bank’s Expectation:
– CPI should come down to 3% in the middle of 2023.
– 3-month measures for inflation have it trending toward 3.5%
– Bank states – both will need to come down further, as will short term inflation expectations to return inflation to the 2% target
What lies ahead:
– Quantitative tightening is complementing this restrictive stance.
– Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target.
– The Bank remains resolute in its commitment to restoring price stability for Canadians.
The next scheduled date for announcing the overnight rate target is April 12, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report at the same time.
To discuss your options, prepare for future rates at maturity or determine if riding out the variable rate environment or locking into a fixed rate will prove most favourable for YOU and your situation – or if you need assistance in managing cash flow in these challenging times – please reach out. We are here for you.
