On Wednesday, October 25th, the Bank of Canada made their latest scheduled rate announcement, that they were holding the overnight rate at 5%. This translates to a hold in the Prime lending rate with lenders, which is currently at 7.20%
For anyone with a variable rate mortgage, line of credit or credit card date this is a bit of welcome news. While a pause in rate hikes is welcome, it still does not provide borrowers with any relief for their current borrowing costs, but it does at least temporarily, not inflict further pain.
There has been a lot of pressure on the Bank of Canada to not take a further hike lightly as a further hike would have increased borrowing costs for many borrowers who are feeling the double effect of high interest cost along with overall increased cost of living, from fuel to groceries.
With the economy slowing but inflation still at 3.8% versus a target rate of 2%, it was no doubt a difficult decision. Raise rates too high and it could have a devastating effect on borrowers and slow the economy to the point of pushing us into recession. Keep rates too low and risk increased inflation.
The hope is that previous rate hikes are still making an impact on slowing the economy and hopefully lowering inflation closer to the target rate, without the need for further hikes. At the same time, bond yields have been increasing on their own and have a further effect of increasing the fixed-term rate which will have a stifling effect as well. Basically, they are taking a wait-and-see approach but have cautioned that further interest rate hikes could still be required if inflation isn’t further reduced towards the target rate.
The next rate announcement from the Bank of Canada is set for January 25th, 2024. As your Grimsby Mortgage Broker, my hope is that inflationary pressures continue to subside so that further rates are not required and the Bank of Canada can soon announce that they will be decreasing rates. That day can’t come soon enough!