On January 24, 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 fourth hold in a row.
Bank of Canada policy rate, %
What the Bank said
- The economy has stalled since the middle of 2023, and growth will likely stay near zero through the first quarter of 2024.
- The economy now looks to be in modest excess supply.
- CPI inflation ended 2023 at 3.4%. Shelter costs are the biggest contributor to above-target inflation.
- The Bank forecasts GDP growth of 0.8% in 2024 and 2.4% in 2025, with inflation near 3% in the first half of 2024 and back to 2% in 2025.
What it means for Calgary
The Bank’s statement no longer stressed readiness to raise rates further, a sign the hiking cycle may be over. CREB®’s 2024 forecast, released a day earlier, assumes rates ease during the year. The next decision is on March 6, 2024.
Why the tone changed
In December, the Bank said it remained prepared to raise the policy rate further if needed. In January, that sentence was gone. Instead, the Bank said the economy has stalled since the middle of 2023, that supply has caught up with demand, and that the economy now looks to be operating in modest excess supply. Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted. The Bank is still concerned about the persistence of underlying inflation and wants to see further and sustained easing in core inflation.
Labour market and wages
Job vacancies have returned to near pre-pandemic levels, and new jobs are being created more slowly than the population is growing. Wages, though, are still rising around 4% to 5%. That combination, a softer job market with still-firm wage growth, is part of why the Bank is not ready to cut yet.
Shelter is the main inflation pressure
CPI inflation ended 2023 at 3.4%. The Bank said shelter costs remain the biggest contributor to above-target inflation. It expects inflation to stay close to 3% during the first half of 2024 before gradually easing, returning to the 2% target in 2025. The slowdown in demand is reducing price pressures in more CPI components, and corporate pricing is normalizing, but core inflation measures are not showing sustained declines.
The outlook
Growth will likely stay close to zero through the first quarter of 2024 and strengthen gradually around the middle of the year. In the second half, household spending should pick up, and exports and business investment should benefit from recovering foreign demand. Government spending contributes materially to growth. Globally, the Bank forecasts growth of 2.5% in 2024 and 2.75% in 2025, after 3% in 2023. Oil prices are about $10 per barrel lower than assumed in October, and financial conditions have eased, largely reversing the tightening of last autumn.
The Calgary angle
Shelter costs are a national inflation problem, and Calgary is part of it. CREB’s 2023 year-end figures showed inventory averaging 44% below the 10-year average and apartment prices at a record $321,400 in December. CREB’s 2024 forecast, released on January 23, expects buyers who waited in 2023 to return as rates ease and listings improve, and sellers’ conditions to persist through the spring.
What it means for you
- Variable-rate borrowers: the Bank is no longer talking about more increases, but it has not signalled when cuts could start.
- Buyers: if rates fall later in the year, competition could rise too; buying in early spring may face less of it.
- Owners renewing: fixed rates follow bond yields, which eased after the autumn; compare offers.
