Bank of Canada raises its key policy rate by .25% to 4.75%

The Bank of Canada increased the overnight rate today to 4.75% citing persistent inflation at 4.4%, a hot job market and stronger than expected economy.

By raising the overnight rate, the expected effect in the coming months is: “In our baseline forecast, the labour market will soften as the economy slows. Wage growth will ease. Businesses will revert to more normal price-setting behaviour. And near-term inflation expectations will come into line with the inflation target,” said Bank of Canada Governor Tiff Macklem recently.

With inflation at twice the Bank of Canada’s target rate of 2%, housing-market activity that has dramatically increased this spring fuelling an uptick in home prices and the economy showing no signs of softening could lead to even a further Bank of Canada increase this year. However, most Canadian economists believe the Bank of Canada will leave its key interest rate at 4.75% for the duration of 2023 even though the Bank of Canada left the door open to more tightening. The next official inflation announcement is scheduled for June 27, 2023.

Looking ahead:

The Bank of Canada would be poised to reduce overnight rates to spur the general economy back to health and provided inflation is close to its target range of 2% – likely in 2024. This will have a dramatic effect on real estate market activity due to pent-up buyer demand, falling interest rates, massive immigration in Canada increasing demand for housing and a severe undersupply of housing stock.  

The next Bank of Canada announcement is July 12, 2023.