Much to the delight of variable rate mortgage holders, the Bank of Canada announced this morning that they will be holding their rate for the second time in a row. It was only about two weeks ago when the possibility of a hike with today’s announcement was about 50/50. But with CPI inflation dropping to 3.8% in last week’s report, the consensus among economists was that we would see the rate left unchanged which was exactly what happened.

While the lack of rate movement is what we wanted to hear, we’re still not out of the woods just yet. As the Bank of Canada has stated multiple times in previous announcements, they are prepared to increase further if needed. Here’s an excerpt from this morning’s release:  

“Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed”.

That doesn’t mean that they WILL be increasing rates further.

In fact, it’s widely believed that we’ve seen the last of the hikes in this cycle. It’s likely that the Bank of Canada themselves are not anticipating a requirement for further upward movement. But they have to choose their wording carefully. If they are too optimistic, it could create premature optimism, which would improve consumer confidence and stimulate spending. This would in turn drive inflation, which could result in rates remaining elevated for a longer period.

As it stands now, the Bank of Canada is expecting to reach its inflation target of 2% by the end of 2025. The big six banks are still forecasting cuts between 0.50% and 1.50% by the end of 2024, starting as soon as the 2nd quarter, with further cuts expected into 2025.

 

Conclusion

While rates eventually start to fall, it’s still a bit soon to think about chilling the champagne. But we’re getting closer and closer to that time with each passing day. Eventually, we’ll get there, and it will be a happy day when we do.

You can read the full announcement from the Bank of Canada here.