September 2023 Bank of Canada Interest Rate Update

September 6, 2023

Key points from the September 2023 Bank of Canada announcement:

  • The BOC announced a hold on the policy after two consecutive increases.
  • The policy rate will remain at 5.00%.
  • The retail prime rate (what you and I pay) remains at 7.20%
  • The BoC cited a “sharp” decline in economic growth as a concern that has prompted them to ‘wait and see.’

 

The Bank of Canada maintains the policy rate unchanged.

This morning, the Bank of Canada opted to hold the overnight lending rate at 5.00% in line with market expectations after a weak month-over-month GDP reading.

You can read the full press release here. 

The market was bracing for the real possibility of yet another +25bps increase to the prime rate today.

The most recent inflation reading showed a meaningful increase in the inflation growth rate from 2.8% in June to 3.3% for the month of July. This uptick had many observers anticipating the possibility of another rate hike.

However last Friday, the market received a surprise month-over-month GDP reading showing that the Canadian economy contracted and is stagnating.

It was enough to justify a pause and “waiting & see” narrative by the BoC.

Rate forecast

Have we seen the last rate increase of this cycle?

If you haven’t noticed, everyone who attempted to make any prediction about rates since 2021 has been burned. From the Governors of the Bank of Canada through to this humble observer.

This cycle has proven to be very difficult to predict due to the lagging impact of covid reopening and the unprecedented amount of stimulus pumped into the economy.

There are some cracks starting to form which could move the economy into a recession and cause rates to drop.

Among the trends we are watching both here and in the US:

  • Shrinking GDP in Canada
  • Increasing unemployment numbers in both Canada & the US
  • Increasing delinquency rates on consumer debts – Levels we haven’t seen since 2008’s financial crisis
  • Tightening credit conditions for both businesses and households
  • Falling real estate prices

None of the above alone are enough to cause a recession and there is certainly still a case to be made for a soft-landing which is why everyone is tight lipped about setting any expectations about where rates will be in the near future.

The market is widely expecting a hold of the current rate with cuts commencing Q2 2024.

Need more help or information?

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