BANK OF CANADA RATE MAINTAINS POLICY RATE – 4.5% !!!

If you haven’t heard already, The Bank of Canada has announced that it will maintain its target for the overnight rate at 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%. The central bank is also continuing its policy of quantitative tightening. What does this mean for the real estate market and homeownership?

Firstly, let’s understand what quantitative tightening is. It is a contractionary monetary policy used by a central bank to decrease the money supply in the economy. This can be done by selling government bonds or increasing the interest rate. When the interest rate is high, borrowing becomes more expensive, and this can impact consumer spending and demand for housing.

The Bank of Canada's decision to maintain its current interest rates means that there will be no immediate changes to mortgage rates. However, as more households renew their mortgages at higher rates, consumption is expected to moderate this year. This could lead to a softening of demand in the housing market.

The Bank of Canada projects that the economy will grow by 1.4% this year and 1.3% in 2024 before picking up to 2.5% in 2025. This means that the economy is expected to remain weak throughout the remainder of this year before gradually picking up next year. As a result, it is expected that the housing market will remain subdued in the short term.

Inflation in Canada has eased to 5.2% in February, and the Bank expects it to fall to around 3% in the middle of this year and then decline more gradually to the 2% target by the end of 2024. While this is positive news, getting inflation the rest of the way back to 2% could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize.

Overall, the Bank of Canada’s decision to maintain its current interest rates will have an impact on the housing market, and it will be interesting to see how this rate pause affects the ‘uncertainty’ on behalf of both homebuyers and homeowners. Regardless, both homebuyers and homeowners should continue to monitor the market and their personal financial situation to determine the best course of action for their real estate decisions.

If you’re wondering how this announcement impacts your real estate choices, I’d be happy to assist. I can provide insight into the current market and help you make informed decisions about buying, selling, or refinancing your home.

Michael Simone