What the Bank of Canada's latest policy announcement means for homebuyers
No surprises today. The Bank of Canada announced that it is maintaining its policy interest rate at 4.5%. This is good news for homebuyers and homeowners who have been hit with eight interest rate increases since the beginning of last year.
But what happens next? Here's what the Bank had to say about Canadian inflation and economic performance:
Inflation has eased slightly to 5.9% in January, due to lower price increases for energy, durable goods, and some services. However, the price of food and shelter remain high, which is causing continued hardship for Canadians. The Bank expects that weak economic growth in the coming quarters will ease pressures in product and labor markets, which should moderate wage growth and increase competitive pressures. This will make it more difficult for businesses to pass on higher costs to consumers.
Canadian economic growth was flat in the fourth quarter of 2022, which was lower than the Bank's projection. While consumption, government spending, and net exports all increased, weaker-than-expected GDP was largely due to a "sizeable slowdown" in inventory investment. Restrictive monetary policy continues to impact household spending, and business investment has weakened due to slowing domestic and foreign demand. However, the labor market remains tight, employment growth is surprisingly strong, and wages continue to grow at 4% to 5%, despite a decline in productivity in recent quarters.
Globally, economic developments are evolving broadly in line with the Bank's January Monetary Policy Report outlook. Global growth continues to slow, and inflation is coming down due to lower energy prices. While near-term outlooks for growth and inflation are somewhat higher than expected in the United States and Europe, labor markets remain tight, and elevated core inflation is persisting. China's growth is rebounding in the first quarter, and commodity prices have evolved roughly in line with the Bank's expectations. However, the strength of China's recovery and the impact of Russia's war in Ukraine remain key sources of upside risk.
Looking ahead, the Bank expects CPI inflation to reduce to around 3% in the middle of 2023. The Bank is continuing its policy of quantitative tightening as a complement to its "restrictive stance" on interest rates. It will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The next report on CPI in Canada will be made public on March 21, 2023, covering February data.
The Bank's next scheduled policy interest rate announcement will be on April 12, 2023.
