July 2023 Bank of Canada Interest Rate Update

Key points from the July 2023 Bank of Canada announcement:

• The Bank of Canada announced another 0.25% increase to their policy rate
• The policy rate is now 5.00% – a 22 year high watermark
  
• The retail prime rate (what you and I pay) will increase to 7.20%

• You can find the full press release here.

The Bank of Canada announces another ¼ increase to the prime rate

The arduous path to tame inflation and a hot Canadian economy has led to yet another 0.25% increase to the Bank of Canada’s policy rate. 

The overnight lending rate now sits at 5.00%, a 22 year high watermark. 

You can read the full press release here. 

Unlike last month, this morning’s announcement did not surprise markets which had been pricing in a 75% chance of an increase. 

Despite a positive headline inflation reading in May of 3.4% CPI, the less-volatile core measures suggested prices are still rising rapidly. 

The labour market remains very tight. The economy is growing more than anticipated. 

The confluence of these factors meant that the Bank of Canada couldn’t let up on their battle to cool the economy to bring inflation back in line. 

For my full analysis and breakdown of the macro economics click here. 

Rate forecast

Many economists and observers have noted that today’s increase will likely be the last restrictive rate increase. 

Of course we’ve heard that before. Just think to the beginning of this year when the BoC committed to a temporary truce. 

While I’m cautious to suggest that today’s increase will be the last, there is growing evidence to suggest that we are heading in the right direction. 

I’ve been a mortgage broker for 17 years now and I can’t recall a period where interest rates, both fixed and variable, have been so volatile and sensitive to economic data. 

That is why I’ve included a monthly Inflation Watch report on my website to help breakdown the complex data that drives interest rate movements. 

At the moment I believe the summit of the rate mountain is clearly coming into view. The question is, how long will we have to plateau before our descent?