The Bank of Canada has decided to maintain its key rate at 5% for the fourth consecutive time in the hope of combating inflation.
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The last increase in the key rate dates back to last July.
The Bank of Canada (BoC) says global economic expansion “continues to slow” and inflation “gradually declines” in most global economies.
In Canada, the economy has been stagnant since mid-2023, and growth “will likely remain near zero in the first quarter of 2024.”
“Consumers reduced their spending in response to price and interest rate increases, and business investment contracted. Given the weak growth, supply has caught up with demand and now appears to be slightly in surplus,” it was clarified in a press release on Wednesday.
The BoC estimates that economic growth should gradually resume “around the middle of 2024. In the second half of the year, household spending should strengthen, while exports and business investment should benefit from the revival of the foreign demand.
Even though it decided to maintain its key rate at 5%, the Bank of Canada said it was “concerned about the risks surrounding the inflation outlook, especially the persistence of high underlying inflation.”
Remember that since July 12, 2023, after two consecutive quarter-point increases, the Bank of Canada has decided to maintain its key rate at 5%. The next update will be on March 6, 2024.
Mortgage rates and housing
“The Bank did not surprise anyone by maintaining the key rate,” reacted Philippe Simard, Mortgage Director in Quebec at Ratehub.ca, who expects that the reductions in the key rate “will occur later and that they will be less important than most people anticipate.”
For Mr. Simard, holders of an adjustable-rate mortgage loan or a mortgage line of credit “will be disappointed not to know when they can expect the first drop in the key rate.”
He also believes that this announcement will not have much effect on the value of housing. “Any indication of a rate cut from the Bank of Canada would have immediately put upward pressure on housing prices,” he said.