Bank of Canada maintains its key policy rate at 5.0 per cent
The Bank of Canada kept the overnight rate today to 5.0% after receiving data, as of September 2023, that the inflation rate is at 3.8% and trending downward towards its target of 2%. Canada will officially announce soon it has entered a recession which is expected to be short in duration and this also bolstered the central bank decision to adopt a “wait and see” stance as it would appear its monetary policy is curbing domestic demand for goods and services which in turn is lowering inflation.
With respect to Canada’s overall housing market, according to the Canadian Real Estate Association (CREA): “The Canadian housing market is expected to face continued challenges in the coming months. Uncertainty surrounding interest rates, surging mortgage payments and other borrowing costs will likely persist, affecting buyer sentiment and market dynamics.” Shaun Cathcart, CREA’s Senior Economist is more specific: “With the inventory of homes for sale still historically low amid huge demand for housing in Canada, what happens next will depend on interest rates. Whether that means uncertainty about the possibility of further hikes, or just the cost of borrowing money right now, neither of these will be resolved for would-be buyers anytime soon. As such, expect a quieter-than-normal winter with all eyes on the Bank of Canada.”
Looking ahead in 12 months time: The Bank of Canada would be poised to reduce overnight interest rates to spur the general economy back to health and provided inflation is close to its target range of 2% – expected now in late 2024. This will be good news for the more than 50% of mortgages that face renewal in 2025 and 2026. Furthermore, this will have a dramatic effect on real estate market activity due to pent up buyer demand, falling interest rates which would improve affordability, massive immigration into Canada increasing demand for housing and a severe undersupply of housing stock.
The next Bank of Canada announcement is December 6, 2023.