Key points from the December 2023 Bank of Canada announcement:
- The BOC announced a third consecutive hold to the policy rate.
- The overnight lending rate will remain at 5.00%.
- The retail prime rate (what you and I pay) remains at 7.20%.
- Fixed rate mortgages have started to drop in anticipation of BoC cuts in 2024.
- You can find the full press release here.
Bank of Canada holds policy rate for 3rd consecutive meeting
The Bank of Canada met market expectations by announcing no change to the policy rate. This is the 3rd consecutive meeting where the BoC has opted to keep the policy rate unchanged deeming it to be sufficiently restrictive to battle inflation.
Today’s announcement wasn’t a surprise to anyone.
Market participants wanted to see the language accompanying the announcement because the BoC is in a tough position.
There is a danger of increased price pressure if they soften their talk around high interest rates too soon.
On the other hand, there is growing evidence that Canada’s economy is in decline and will require help from the BoC in the form of lower interest rates in the near future.
Today’s announcement could be called a bit of bluff. The BoC uses the threat of future rate hikes if they aren’t satisfied with progress on inflation but the reality is that they are aware that the Canadian economy is in decline.
RATE FORECAST
Anticipating central bank rate cuts, we saw a strong rally in the bond market which lowered yields by ~100 bps from the highs we saw in October. This has started a trickle down effect on fixed interest rates which are starting to drop. I expect this trend to continue throughout 2024.
Remember banks use the elevator when raising rates and the stairs when lowering. There is still a long way for rates to drop but it’s a positive trend.
In the face of deteriorating economic conditions the market is pricing in 100% probability that we will see the BoC cutting interest rates 2 or 3 times before June 2024. The relief can’t come soon enough for Canadians.
Rate cuts are expected to continue throughout 2024 and into 2025 with an expectation that the BoC will drop rates by approximately 2.50%. This would drop the retail prime rate from 7.20% to 4.70%.
Need more help or information?
If you would like to get in touch about today’s announcement or your mortgage, you can contact me here or book a call in my calendar below.
