Mortgage Logic

Bank of Canada today…no Change, Later on for Rate Cuts

Today the Bank of Canada (BoC) again has decided to hold their Key Rate the same.  The Canadian economy is in an unusual situation due to a combination of Federal Government policies and post-COVID effects.  Inflation began going through the roof, as we all remember, in the middle of the COVID reign, due to supply lines being restrained by government mandates (and energy production restrictions) while spending policies created demand.  Since then, the following issues have developed:

  • Immigration has broken records and Canada is now experiencing double the number of immigrants into the country than the long-established norm.  See immigration chart.   Immigrants now make up 20% of the population.  Canada now welcomes over a half million newcomers each year.  This puts tremendous pressure on the “demand” side of the economy (and thus inflation), especially in the housing sector.
  • Hiring workers has become difficult for employers, especially skilled workers.  Much of the workforce has disappeared during covid, either withdrawing permanently to retirement or starting home-based businesses.  This has caused demand for workers (wages) to increase, thus contributing to inflation.

After drastically ramping up its key rate in March 2022 from .25% to 5.0% in July 2023, the BoC has not touched its rate since.  Inflation has curbed down well (to 3% from 8%)  – which is their primary concern, while the economy has expanded modestly by 1% in the last quarter of 2023. 

The BoC remains in a difficult position toward lowering rates, so as not to spur inflation upwards again.  Government policies have guaranteed the BoC this difficult task. 

The consensus among economic and financial experts is that the BoC should start cutting their key rate later in 2024, but the speed of this will not be close to how fast they increased rates from March 2022 through July 2023. 

For more information about these issues or any issue about your financial situation please feel free to contact us.