On March 8, 2023, the Bank of Canada held its target for the overnight rate at 4.5%, with the Bank Rate at 4.75% and the deposit rate at 4.5%. It was the first decision without an increase since the Bank began raising rates in March 2022.
Bank of Canada policy rate, %
What the Bank said
- Growth was flat in the fourth quarter of 2022, weaker than projected, mostly because of slower inventory investment.
- The labour market remains very tight, with wages growing 4% to 5%.
- Inflation eased to 5.9% in January. The Bank still expects about 3% by the middle of the year.
- It is prepared to raise the rate further if needed to return inflation to the 2% target.
What it means for Calgary buyers
A pause gives buyers a steadier base for budgets and pre-approvals. Fixed mortgage rates follow bond yields rather than the policy rate, so shop around. The next decision is on April 12, 2023.
Why the Bank paused
In January, Governing Council said it expected to hold the rate if the economy evolved broadly in line with its forecast. Based on the data since then, it decided to keep the rate at 4.5%. Quantitative tightening continues alongside this restrictive stance. The Bank was clear that the pause is not the end: it is prepared to raise the rate further if needed to bring inflation back to 2%.
The global picture
Global developments have been broadly in line with the January outlook. Growth continues to slow, and inflation is coming down, mainly because of lower energy prices. In the United States and Europe, labour markets remain tight and core inflation is persisting, so near-term growth and inflation look somewhat higher than expected. China’s growth is rebounding in the first quarter. Financial conditions have tightened since January, and the US dollar has strengthened.
Canada: weaker growth, tight jobs market
Consumption, government spending and net exports all increased in the fourth quarter, so the flat GDP number was largely due to a big slowdown in inventory investment. Restrictive policy continues to weigh on household spending, and business investment has weakened. Employment growth has been surprisingly strong, unemployment is near historic lows and job vacancies are elevated, while productivity has declined in recent quarters.
Food and shelter prices remain high. Year-over-year core inflation ticked down to about 5%, and 3-month measures are around 3.5%. The Bank says both, along with short-term inflation expectations, need to come down further.
What it means for Calgary buyers and owners
For the first time in a year, variable-rate payments and prime-based lines of credit do not change after a decision. That stability arrives as the spring market begins, with Calgary’s February inventory among the lowest since 2006.
- Buyers: lock in a rate hold before you start making offers; it protects you if fixed rates rise.
- Variable-rate owners: review your budget for a scenario in which rates stay at this level for some time.
- Renewing this year: start talking to lenders four months ahead; offers differ more than many owners expect.
A year of increases, then a pause
The Bank started raising rates in March 2022, when the policy rate was 0.5%. Eight increases later, it reached 4.5% in January 2023. This decision is the first without an increase in that cycle. The Bank says the effects of past increases are still working their way through the economy, which is one reason it wants time to assess them. Many fixed-rate borrowers have not yet renewed at today’s rates, so the full impact on household budgets will take time to show.
We will cover the April 12 decision and the new forecast here.
