Date: December 6, 2023

Category: Newsletter

The Bank of Canada held the overnight rate at 5%. 


Prime holds steady at 7.20%

Yesterday’s decision to keep its overnight policy interest rate at 5.00% – was expected.  However, what was not entirely expected (or welcomed) was the Bank of Canada’s (BOC) statement that it is “still concerned” about risks to the outlook for inflation and “remains prepared to raise” its policy rate “further” if needed.  I suppose that’s the cover-your-butt statement!

Let’s break down some facts:

  • The last BOC increase was in July 2023 
  • Bank of Canada kept interest rates steady at 5% ⚖️
  • A slowdown 📉 in the Canadian 🍁 economy is reducing inflationary pressures, including a drop in gasoline ⛽️ prices, which helped lower the CPI inflation numbers in October. 
  • Higher interest rates 📈 are visibly restraining consumer spending 💰 as we see consumption growth close to zero in the last two quarters. 
  • 🔍Job creation hit a pause, and businesses kept things even. 
  • The bond market has seen nearly a 1% reduction in rates since October, and it’s reasonable to expect that the five-year fixed rates will now drop with this last BOC announcement of holding the overnight rate.

Over the past year, we’ve endured the uncertainty of increasing mortgage rates and mortgage payments.  It would seem that we are now in a period of steadiness that should offer some relief as we anxiously await future rate reductions and level off to a more palatable level.  Although we don’t anticipate any immediate rate reductions, this is a pivotal time to review, strategize, and plan for the anticipated rate reductions.  

Recent Trends and BOC’s Dilemma 

Crucial to the Canadian economy, the real estate and housing markets are in recession; whether we talk about it or not, the recent activity or lack of indicates a downturn.  Unlike historical practices of raising interest rates, the BOC now faces the challenge of navigating economic downturns without exacerbating the situation.  Slow and steady should be their motto.

Impact on Mortgage Renewals 

As interest rates have already overshot, homeowners with upcoming mortgage renewals are bracing for a 20-25% increase in mortgage payments.  The BOC is urged to consider measured rate cuts to cushion the blow to Canadians. 

Crystal Ball Predictions 

Predictions are like water—hard to grasp, constantly slipping away with the slightest move, and as you know, I’m not fond of predictions as they are usually only correct 50% of the time. 

However, during these uncertain times, I’m often asked what I think will happen with rates in the near future.  Therefore, here are my thoughts based on everything I’m reading and hearing, along with a disclaimer that this is based on today’s information and that things may and will change.  

You may know that I’m partial to the views and forecasts of Benjamin Tal, Deputy Chief Economist of CIBC World Markets Inc. Benjamin suggests a gradual reduction of the overnight rate from 5% to 3.5% by the end of 2024, with a further easing to 2.75% by the end of 2025.  He states this deliberate approach aims to stimulate the economy while avoiding undue risks.

As we finish 2023 and move into 2024 and Canada faces some economic uncertainties, time will reveal whether these predictions align with unfolding economic realities, emphasizing the importance of vigilant and strategic decision-making.

Creating a strategic plan is vital to successfully navigating the next few years.  It’s essential to connect with us and leverage our expertise to assist you in shaping a robust 1-3-year strategy.  Whether you’re a homeowner or an industry professional, thoughtful planning and collaboration, ensure that you not only weather the current challenges but also position yourself for long-term success in an ever-evolving market.

Click here to read the Full Bank of Canada Statement

The next scheduled date for announcing the overnight rate target is January 24, 2024

Inflation numbers will be available on December 19, 2023

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