In this morning’s scheduled rate announcement, the Bank of Canada confirmed that they are leaving their rate where it is.

Finally!

Exactly what variable rate mortgage holders wanted to hear.

This is the first time they have maintained their rate since January 26, 2022. After eight consecutive rate hikes, six of which were oversized, it’s nice to see that they are staying put. 

In their last announcement on January 25th the BoC stated that they were pausing rate hikes. It’s nice to see that they came through with this promise after being so radically wrong the past couple of years. They are of course aware of their recent track record, so if they said they were pausing their hikes, then they needed to be pretty close to 100% sure before spreading the news.

The concern was when the employment numbers released in early February turned out to be much stronger than expected in both US and Canada. Strong employment can fuel inflation, which could have meant that the BoC would have had to eat their words once again and continue with yet another increase this morning. 

Fortunately that didn’t happen.

 

Inflation Targets & Rate Forecasts

This is an indication that the Bank of Canada is confident in the effectiveness of their rate hiking madness and its role in bringing inflation down to their target rate of 2.00%. The Bank is still expecting inflation to drop to 3.00% by the middle of this year, which is in line with their January report.

It’s nice to know that this has not changed.

But this doesn’t mean that we are out of the woods yet.

The BoC is still prepared to increase their rate further if necessary. Let’s hope and pray it doesn’t come to that. But if CPI inflation continues to fall, and it appears that the BoC is on track to reach its inflation targets, then we should have seen the last of the rate increases in this vicious cycle.

All six of the big banks believe that the next move from the BoC will be a rate cut with half of them expecting it to happen before the end of 2023. This is very similar to what they were forecasting last summer.

This is all great news, and despite the expectation further rate increases are still expected south of the border. While Canada typically follows the US, this is not always the case and is not expected to happen in 2023.

 

Conclusion

It’s an understatement that the last twelve months have resulted in financial struggle for many Canadians. This has led many to look at options for reducing their payments or convert their variable rate into a fixed. 

The Bank of Canada is well aware the hardship. Economists and mortgage industry professionals such as I rely heavily on what is being predicted by the Bank of Canada. It’s not typical for them to be quite this wrong in their forecasts, yet here we are. They know they have a bit of a credibility issue, so we can expect them to think twice before making any predictions.

The last thing they want is to be wrong once again.

While it looks like we may be passing over the hump, there is still uncertainty moving forward. But it’s nice to hear that the BoC believes they are on track with their inflation targets, which means that we could be that much closer to the rate cuts we are all expecting.

Time will tell.

You can read the full report from this morning’s rate announcement here.