The Bank of Canada announced this morning that they are holding their rate for the second straight time. Each time they leave it unchanged puts us one step closer to the moment everyone has been waiting for…. a rate cut, which is expected to lead to a new, downward trend in prime rate.

But this doesn’t guarantee that the cuts are just around the corner. In fact, the word ‘guarantee’ and economic/rate forecasts do not belong together.  As always, there are no guarantees, and anything can happen.

Some economists are speculating that we could see rate cuts come as early as the next rate announcement in June. However, until the Bank of Canada is 100% certain that the inflation problem is behind us, then I wouldn’t expect them to come through with any cuts.

Overall, this morning’s rate announcement was promising.

 

Key Points From The Bank of Canada Announcement

While the report was full of interesting information, there are three points that I wanted to bring attention to:

  • Demand still exceeding supply and labour market remains tight.
  • GDP growth is projected to be weak through the remainder of this year.
  • Housing market activity remains subdued.

 

The tight labour market continues to be an issue for inflation. As long as wages are outpacing inflation, it will be tough for it to be brought under control. If this continues to be a problem, then this could push out the timing of the expected rate cuts.

It’s great that they’re forecasting weak GDP growth for the remainder of the year, which is exactly that they are counting on.

The best comment from the announcement:

The Bank expects CPI inflation to fall quickly to around 3% in the middle of this year and then decline more gradually to the 2% target by end of 2024.

This is what they have been forecasting since last year, so it’s nice to see that they have this much confidence in reaching their previously set goals.

 

The Effect of The Silicon Valley Bank Collapse on Mortgage Rates & The Housing Market

The Canadian finance industry was largely unscathed by the collapse of Silicon Valley Bank in the US. The exception was bond yields, which plummeted following the news, and remain at lower levels to this day. This has resulted in lower fixed rates which is starting to fuel the housing market once again. This will only make it harder for the Bank of Canada to reach their inflation goal.  

 

Conclusion

While the Bank’s announcement was positive, there is still a lot of uncertainty. It’s nice to think that we could see rate cuts from the BoC this summer, but I think it’s too early for us to start getting our hopes up. The big six banks are still forecasting that the cuts will start in 2024 (NBC in 4th quarter 2023). This may change as a couple of the banks are due to release updated forecasts.

For anyone trying to choose the mortgage product that is best for them, you should find the following of my recent blogs quite informative:

How to Choose Between a 1, 2 or 3 Year Fixed Mortgage Rate

Should Variable Rates Be Considered in Today’s Market

While it’s possible that we could see cuts from the Bank sooner than later, keep in mind that anything can happen, and current forecasts can quickly change in one direction or another.

Time will tell and anything can happen. 

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