The Bank of Canada surprised no one — except maybe the premiers of British Columbia and Ontario — on Wednesday by holding interest rates flat, at least for now..In its regular announcement, the bank held its target for the overnight rate at 5%, the bank rate at 5¼% and the deposit rate at 5%. The bank said it is also continuing its policy of quantitative tightening or limiting the money supply..Although inflation remains outside its 2% target, weaker economic growth and slower housing starts prompted the decision to hold while keeping the door open to further hikes in October and December..“With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, (the) Governing Council decided to hold the policy interest rate… and continue to normalize the Bank’s balance sheet,” said the bank in a statement..“However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed.”.Reaction was muted. That’s because the move was expected by 93% of economists polled by Finder.com, which compiles rate data and consumer sentiment..Finder.com panel members Douglas Porter, Chief Economist for BMO Capital Markets and Avery Shenfeld, Managing Director and Chief Economist of CIBC Capital Markets, both believe past rate hikes have already achieved the economic slowdown sought by the bank.."The back-up in the unemployment rate and the weak Q2 GDP are plenty of evidence that past rate hikes are biting," explains Porter. .Meanwhile Shenfeld points out that "there are enough signs that growth is slowing and labour market is increasing, (and this) suggests that current interest rates are high enough to bring inflation down, over time.".However, today's announcement of a rate hold does not mean the bank is confident the nation's economy is on track. ."Some indicators could support higher rates — like the increase in inflation, persistence in inflation and high wage growth," explains Charles St-Arnaud, Chief Economist for Alberta Central. "(Still) growth is slowing to a crawl and some slack is gradually appear in the labour market," making a rate hold the best course of action, at this point in time. .According to James Laird, co-CEO of ratehub.ca and president of CanWise mortgage lender, those with home equity lines and variable rate mortgages are breathing a sigh of relief. However, he noted the bank made it clear they are prepared to achieve their 2% interest rate target, no matter what..“Canadians should continue to budget for further rate increases, because the bank has been clear that they will raise rates further if inflation remains above target,” he said..It comes as housing markets are expected to remain soft in most parts of the country — with the exception of Toronto, Calgary and Sudbury — according to RE/MAX Canada’s latest fall housing outlook..Higher interest rates and a lack of inventory are expected to keep prices for all housing types flat with no change expected by the end of the year..The outliers are Calgary, where prices are expected to increase 4.5%, the GTA, at 2.5% and Sudbury at 5%..The housing shortage is having the greatest impact on Millennial and Gen Z homebuyers. According to a Leger survey commissioned by RE/MAX Canada as part of the report, lack of affordable housing is leading more than half of Gen Zs (55%), and nearly half of Millennials (49%) to change their housing plans..According to Leger, 33% of Canadians who are interested in buying and/or selling in the next 12 months will wait and see how interest rate changes play out before buying. .According to Nathan Jensen, assistant chief economist with the Royal Bank of Canada, expect rates to stay flat..”We continue to expect that the recent soft-patch in economic data will continue, and look for the overnight rate to hold where it is through the end of this year,” he wrote.
The Bank of Canada surprised no one — except maybe the premiers of British Columbia and Ontario — on Wednesday by holding interest rates flat, at least for now..In its regular announcement, the bank held its target for the overnight rate at 5%, the bank rate at 5¼% and the deposit rate at 5%. The bank said it is also continuing its policy of quantitative tightening or limiting the money supply..Although inflation remains outside its 2% target, weaker economic growth and slower housing starts prompted the decision to hold while keeping the door open to further hikes in October and December..“With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, (the) Governing Council decided to hold the policy interest rate… and continue to normalize the Bank’s balance sheet,” said the bank in a statement..“However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed.”.Reaction was muted. That’s because the move was expected by 93% of economists polled by Finder.com, which compiles rate data and consumer sentiment..Finder.com panel members Douglas Porter, Chief Economist for BMO Capital Markets and Avery Shenfeld, Managing Director and Chief Economist of CIBC Capital Markets, both believe past rate hikes have already achieved the economic slowdown sought by the bank.."The back-up in the unemployment rate and the weak Q2 GDP are plenty of evidence that past rate hikes are biting," explains Porter. .Meanwhile Shenfeld points out that "there are enough signs that growth is slowing and labour market is increasing, (and this) suggests that current interest rates are high enough to bring inflation down, over time.".However, today's announcement of a rate hold does not mean the bank is confident the nation's economy is on track. ."Some indicators could support higher rates — like the increase in inflation, persistence in inflation and high wage growth," explains Charles St-Arnaud, Chief Economist for Alberta Central. "(Still) growth is slowing to a crawl and some slack is gradually appear in the labour market," making a rate hold the best course of action, at this point in time. .According to James Laird, co-CEO of ratehub.ca and president of CanWise mortgage lender, those with home equity lines and variable rate mortgages are breathing a sigh of relief. However, he noted the bank made it clear they are prepared to achieve their 2% interest rate target, no matter what..“Canadians should continue to budget for further rate increases, because the bank has been clear that they will raise rates further if inflation remains above target,” he said..It comes as housing markets are expected to remain soft in most parts of the country — with the exception of Toronto, Calgary and Sudbury — according to RE/MAX Canada’s latest fall housing outlook..Higher interest rates and a lack of inventory are expected to keep prices for all housing types flat with no change expected by the end of the year..The outliers are Calgary, where prices are expected to increase 4.5%, the GTA, at 2.5% and Sudbury at 5%..The housing shortage is having the greatest impact on Millennial and Gen Z homebuyers. According to a Leger survey commissioned by RE/MAX Canada as part of the report, lack of affordable housing is leading more than half of Gen Zs (55%), and nearly half of Millennials (49%) to change their housing plans..According to Leger, 33% of Canadians who are interested in buying and/or selling in the next 12 months will wait and see how interest rate changes play out before buying. .According to Nathan Jensen, assistant chief economist with the Royal Bank of Canada, expect rates to stay flat..”We continue to expect that the recent soft-patch in economic data will continue, and look for the overnight rate to hold where it is through the end of this year,” he wrote.
