Bank of Canada’s Interest Rate Announcement: Rate Holds Steady at 5%
The Bank of Canada held its overnight rate at 5% in Wednesday morning’s interest rate announcement, which was widely expected as the economy shows signs of slowing down. The Bank did leave the door open to the possibility of further interest rate hikes in the future, noting the “persistence of underlying inflationary pressures.“
CPI inflation eased back to 2.8% in June, before rising to 3.3% in July, which is somewhat in line with the Bank’s 3% projection. “The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability,” according to the Bank’s interest rate announcement.
Rising interest rates have had a tangible impact on the Canadian housing market this year, a trend that’s expected to continue through the fall, according to the RE/MAX 2023 Fall Housing Market Outlook Report. RE/MAX brokers and agents across Canada are reporting that both the interest rate climate and lack of inventory are likely to result in a softer market, with average prices expected to remain flat for the remainder of 2023.
Bank of Canada’s 2023 Policy Interest Rate Announcement Schedule
Bank of Canada announces its decision for the overnight rate target eight times a year, typically on a Wednesday. The schedule for 2023 is as follows:
- Wednesday, January 25*
- Wednesday, March 8
- Wednesday, April 12*
- Wednesday, June 7
- Wednesday, July 12*
- Wednesday, September 6
- Wednesday, October 25*
- Wednesday, December 6
*Monetary Policy Report published
Read the full interest rate announcement below:
The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is also continuing its policy of quantitative tightening.
Inflation in advanced economies has continued to come down, but with measures of core inflation still elevated, major central banks remain focused on restoring price stability. Global growth slowed in the second quarter of 2023, largely reflecting a significant deceleration in China. With ongoing weakness in the property sector undermining confidence, growth prospects in China have diminished. In the United States, growth was stronger than expected, led by robust consumer spending. In Europe, strength in the service sector supported growth, offsetting an ongoing contraction in manufacturing. Global bond yields have risen, reflecting higher real interest rates, and international oil prices are higher than was assumed in the July Monetary Policy Report (MPR).
The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures. Economic growth slowed sharply in the second quarter of 2023, with output contracting by 0.2% at an annualized rate. This reflected a marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country. Household credit growth slowed as the impact of higher rates restrained spending among a wider range of borrowers. Final domestic demand grew by 1% in the second quarter, supported by government spending and a boost to business investment. The tightness in the labour market has continued to ease gradually. However, wage growth has remained around 4% to 5%.
Recent CPI data indicate that inflationary pressures remain broad-based. After easing to 2.8% in June, CPI inflation moved up to 3.3% in July, averaging close to 3% in line with the Bank’s projection. With the recent increase in gasoline prices, CPI inflation is expected to be higher in the near term before easing again. Year-over-year and three-month measures of core inflation are now both running at about 3.5%, indicating there has been little recent downward momentum in underlying inflation. The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.
With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, Governing Council decided to hold the policy interest rate at 5% and continue to normalize the Bank’s balance sheet. However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed. Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the 2% inflation target. The Bank remains resolute in its commitment to restoring price stability for Canadians.Posted by Paul Ambler on