Bank of Canada – October Rate Decision

The Bank of Canada (BoC) yesterday decided to hold its overnight policy interest rate at 5.00%. The decision is good news to borrowers who’ve seen mortgage costs climb since March 2022. Having said that, the BofC core inflation metrics show minimal decline, leading them to continue their quantitative tightening policy. Below is a summary of their report:

Key Takeaways:

• Inflation: Canada’s Consumer Price Index (CPI) has been fluctuating: 2.8% in June, 4.0% in August, and 3.8% in September. While food inflation is decreasing, housing costs, including rent and mortgage interest, remain high.
• Canadian Economy: Indicators suggest that past interest rate hikes are curbing economic activity. Consumption is muted, with reduced demand for housing and many services. Despite recent job gains, the labour market remains tight.
• Global Economy: The world economy is decelerating. The BoC forecasts global GDP growth at 2.9% for this year, 2.3% in 2024, and 2.6% in 2025. Geopolitical tensions, like the Israel-Gaza conflict, add to uncertainties.
• Outlook: The BoC anticipates the Canadian economy to grow by 1.2% this year, 0.9% in 2024, and 2.5% in 2025. They expect CPI inflation to average around 3.5% until mid-next year, then gradually drop to 2% by 2025.

The Bank’s stance is clear: they’re awaiting a decline in core inflation before altering their approach. Their focus remains on balancing demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. Their commitment and focus remains on restoring price stability for Canadians.

Stay tuned for the Bank’s next interest rate announcement on December 6th.