Bank Of Canada Holds Key Interest Rate At 5% For The Second Time

If you’ve been following the Toronto real estate market, you will likely be aware of the number of key interest rate hikes that the Bank of Canada has implemented since its first rate hike on March 2, 2022. If you haven’t been paying attention to the Toronto real estate market, interest rates or the economy in general, below is an timeline of how we went from a 0.25% overnight interest rate to a 5% interest rate as well as a statement from the Bank of Canada regarding its most recent decision to hold the overnight rate at 5% for the second time in a row. It’s hard for anyone to predict 100% what the future holds in regards to rates, but many in the lending and real estate industries are suspecting that we could begin to see a decrease in the overnight rate in the second half of 2024 or potentially sooner. With that being said, it is unlikely we will see an overnight rate as low as 0.25% any time in the near future. The days of essentially free money are long gone.

  • March 2, 2022 – After leaving the rate at 0.25 throughout the COVID pandemic, the Bank of Canada (BOC) raised rates by 25 basis points bringing the overnight rate to 0.50%
  • April 13, 2022 – Bank of Canada added a 50 basis points bringing the overnight rate to 1%
  • June 1, 2022 – And additional 50 basis points were added bringing the overnight rate to 1.50%
  • July 13, 2022 – The BOC added the largest single rate hike in two decades of 100 basis points, bringing the overnight rate to 2.50%
  • Sept 7, 2022 – Another large increase was made by adding 75 basis points bringing the overnight rate to 3.25%
  • October 26, 2022 – An additional 50 basis points were added bringing the overnight rate to 3.75%
  • December 7, 2022 – Bank of Canada increases the overnight rate by an additional 50 basis points bringing the overnight rate to 4.25%
  • January 25, 2023 – An additional increase of 25 basis points was added, bringing the overnight rate to 4.50%
  • March 8, 2023 – The first time the Bank of Canada decided to hold the overnight rate at 4.50%
  • April 12, 2023 – Bank of Canada decides to continue to hold the overnight rate at 4.50%
  • June 7, 2023 – An additional 25 basis point hike is added, bringing the overnight rate to 4.75%
  • July 12, 2023 – An additional 25 basis point hike is added agin, bringing the overnight rate to 5%
  • September 6, 2023 – Bank of Canada holds overnight rate at 5%
  • October 25, 2023 – Bank of Canada holds overnight rate at 5% again

Toronto real estate interest rates

The Bank of Canada released the following statement below regarding their decision to hold the overnight rate at 5% and the economy in general:

“The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening.

The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty.

In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada’s population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth and job vacancies have continued to ease. However, the labour market remains on the tight side and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance.

After averaging 1% over the past year, economic growth is expected to continue to be weak for the next year before increasing in late 2024 and through 2025. The near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent pickup is driven by household spending as well as stronger exports and business investment in response to improving foreign demand. Spending by governments contributes materially to growth over the forecast horizon. Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025.

CPI inflation has been volatile in recent months—2.8% in June, 4.0% in August, and 3.8% in September. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behaviour are normalizing only gradually, and wages are still growing around 4% to 5%. The Bank’s preferred measures of core inflation show little downward momentum.

In the Bank’s October projection, CPI inflation is expected to average about 3½% through the middle of next year before gradually easing to 2% in 2025. Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation.

With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.

Information note

The next scheduled date for announcing the overnight rate target is December 6, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on January 24, 2024.”


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