Bank of Canada holds at 5% but sees inflation easing

On April 10, 2024, the Bank of Canada held its target for the overnight rate at 5%, with the Bank Rate at 5.25% and the deposit rate at 5%. It was the sixth hold in a row.

Bank of Canada policy rate, %

What the Bank said

• CPI inflation slowed to 2.8% in February, and easing has become more broad-based.
• Core inflation, which had been running around 3.5%, slowed to just over 3%.
• Shelter price inflation is still very elevated, driven by rent and mortgage interest costs.
• Residential investment is strengthening in response to robust housing demand.
• The Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Unemployment reached 6.1% in March.
• The Council will look for evidence that the downward momentum in inflation is sustained.

What it means for Calgary

The tone has shifted toward eventual cuts. Lower rates would add buyers to a Calgary market that already has under one month of supply. The next decision is on June 5, 2024.

The inflation path the Bank expects

The Bank expects CPI inflation to stay close to 3% during the first half of 2024, move below 2.5% in the second half and reach the 2% target in 2025. Three-month annualized rates of core inflation are pointing down, which is the kind of evidence the Bank says it needs. Governing Council is watching core inflation most closely, along with the balance between demand and supply, inflation expectations, wage growth and how companies set prices. There are some recent signs that wage pressures are moderating.

The economy around Calgary

Canada’s growth stalled in the second half of 2023, and the economy moved into excess supply. Employment has been growing more slowly than the working-age population. The Bank expects growth to pick up in 2024 thanks to strong population growth and a recovery in household spending. Global oil prices averaged about $5 higher than assumed in January, and the Bank raised its global growth forecast to 2.75% for 2024. Higher oil prices generally support Alberta’s economy, and population growth is already visible in Calgary’s housing demand.

Compared with March

The rate has now been 5% since July 2023. In March, the Bank also held and said it was still concerned about the persistence of underlying inflation and wanted to see further and sustained easing in core inflation. In April, the message was more hopeful: inflation and core inflation eased further in recent months, though the Bank said risks remain and it will continue quantitative tightening, which means it is not replacing government bonds as they mature.

What it means for Calgary buyers and sellers

Calgary’s market is already tight without rate cuts: CREB reported only 2,532 homes for sale in March, and supply fell below one month. Any cut would improve affordability somewhat, but it would also add more buyers. For now, borrowers still qualify at high rates, and the stress test keeps the bar high.

The Bank also noted that shelter inflation is still very elevated because of rent and mortgage interest costs. In Calgary, where rents have risen quickly with migration, that is a reminder that housing costs are one of the main reasons inflation has not yet returned to target.