On April 12, 2023, the Bank of Canada kept its target for the overnight rate at 4.5% for a second decision in a row, with the Bank Rate at 4.75% and the deposit rate at 4.5%.
Bank of Canada policy rate, %
What the Bank said
- It now projects growth of 1.4% in 2023, 1.3% in 2024 and 2.5% in 2025.
- CPI inflation eased to 5.2% in February. The Bank expects it to fall to about 3% by mid-year and to the 2% target by the end of 2024.
- Strong population gains are adding workers and boosting consumption, while housing activity remains subdued.
- More households will renew mortgages at higher rates this year, which should slow spending.
- The Bank remains prepared to raise the rate further if needed.
What it means for Calgary
Population growth is one of the forces behind Calgary’s tight market. A steady policy rate makes it easier to plan a purchase, but if you are renewing this year, compare offers well before your term ends. The next decision is on June 7, 2023.
The new forecast
With this decision the Bank published its April Monetary Policy Report. It now projects Canada’s economy to grow by 1.4% this year and 1.3% in 2024, before picking up to 2.5% in 2025. Global growth is projected at 2.6% this year, 2.1% in 2024 and 2.8% in 2025. Growth in the first quarter looks stronger than projected in January, with a bounce in exports and solid consumption, but the Bank expects weak growth for the rest of the year and an economy in excess supply in the second half.
What the Bank is watching
Inflation is easing in many countries as energy prices fall, supply chains normalize and monetary policy tightens. In Canada, the Bank’s preferred measures of core inflation were just under 5% in February. Getting the rest of the way back to 2% could be harder, because inflation expectations are coming down slowly, service prices and wages are still rising quickly, and corporate pricing behaviour has yet to normalize. Governing Council said it will focus on these indicators.
In the United States, recent stress in the banking sector has tightened credit conditions further, and US growth is expected to slow considerably, with particular weakness in sectors important for Canadian exports.
Population growth and housing
The Bank highlighted strong population gains, which add to the labour supply and support employment while boosting consumption. It also noted that housing market activity remains subdued. In Calgary, the picture is more mixed: CREB reported 2,432 sales in March, about 40% fewer than a year earlier, while inventory was the lowest for March since 2006 and prices kept rising. Migration is one of the reasons CREB gives for demand holding up.
What it means for you
- Buyers: the policy rate is steady, but the Bank remains prepared to raise it further if needed. Keep a margin in your budget.
- Owners renewing: the Bank expects consumption to moderate as more households renew at higher rates; compare offers early.
- Investors: population growth supports rental demand, but check your numbers at today’s borrowing costs.
The Bank’s next full outlook will be published on July 12, 2023.
Second hold in a row
This is the second decision in a row without a change, after eight increases that took the rate from 0.5% in March 2022 to 4.5% in January 2023. Governing Council said it continues to assess whether policy is restrictive enough to relieve price pressures. Recent data reinforce its confidence that inflation will keep falling in the next few months. For households, that means the period of rapid rate increases appears to be over for now, but the Bank is not signalling cuts.
