The Bank of Canada today held its target for the overnight rate at 5%. The Bank is continuing its policy of quantitative tightening (selling debt from its books).
The global economy is slowing past increases in policy rates and the recent surge in global bond yields are slowing demand. The Bank projects global GDP growth is moderating. While the global growth outlook has not changed much since July, the composition has shifted, with the US economy being stronger and economic activity in China weaker than expected. Inflation has been easing in most economies, as supply chains resolve themselves and weaker demand relieves price pressures.
“In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada’s population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth and job vacancies have continued to ease. However, the labour market remains on the tight side and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance.”
Our concerns with the Canadian economy are:
1.) Higher government spending which contributes to inflation.
2.) Higher interest rates contribute to higher mortgage payments which contributes to inflation.
3.) Restrictive irrational energy policies in the US and Canada that contribute to inflation. The world cannot function without fossil fuels for decades to come.
The Bank’s October projection of CPI inflation is expected to average about 3½% through the middle of next year before gradually easing to 2% in 2025.
For further discussion about your personal borrowing circumstances, please feel free to contact us at Mortgage Logic.
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