Bank of Canada Interest Rate Announcement
July 12, 2023
The Bank of Canada raised its overnight rate by 25 basis points to 5 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy has been stronger than expected but is expected slow as higher interest rate work their way through the economy. On inflation, the Bank cited the recent easing of inflation to 3.4 per cent but also noted that core inflation continues to run a at 3 to 4 per cent pace and has been more persistent than anticipated. The Bank now forecasts a return to its 2 per cent target in mid-2025 rather than in 2024.
While inflation has come down significantly in the past year, the economy seems somewhat impervious to the Bank's efforts to slow it down. The labour market continues to add jobs at a robust pace, consumer spending was brisk during the first quarter and the housing market remains unexpectedly strong. Although the impact of rate increases can take time to be felt, we should be seeing some signs of a slowing economy emerge relatively soon. However, the likelihood of an impending recession and a related fall in interest rates now seem to fading, meaning homebuyers and homeowners may need to wait until next year for any mortgage relief. Indeed, 5-year bond yields are now near 4 per cent for the first time since 2007 which has driven 5-year fixed mortgage rates to their highest point this year. The Bank's statement suggests it may be on pause at 5 per cent, though further rate increases could be on the horizon if the economy continues to out-perform expectations.
Brendon Ogmundson
Chief Economist
Direct: 604.742.2796
Mobile: 604.505.6793
Email: bogmundson@bcrea.bc.ca
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