The Bank of Canada today increased its target for the overnight rate to 4¼% impacting the Prime rate at major FI’s to increase to 6.45%. The Bank is also continuing its policy of quantitative tightening – releasing debt previously purchased from its balance sheet. This rate increase caps off a year of rate increases not seen in decades, driving the BoC rate from 0.25% to 4.25% (Prime: 2.45% to 6.45%).
The BoC’s thoughts are as follows:
- Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected
- The US economy is weakening but consumption continues to be solid and the labor market remains overheated.
- The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.
- Canadian economic (GDP) growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand.
- Canada’s labor market remains tight, with unemployment near historic lows.
- Tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline.
- Data used by BoC supports the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.
What does this all mean? – We are getting toward the end of BoC rate increases in fear of sparking a serious recession. We believe that an unwinding of central bank rates will need to occur over the next two years. In the meantime, opportunities will abound for investing in lower-priced quality real estate and stocks.