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According to their announcement on March 6 , 2024, The Bank of Canada has decided to hold the key interest rate at 5%.
“Today’s decision reflects Governing Council’s assessment that a policy rate of 5% remains appropriate. It’s still too early to consider lowering the policy interest rate,” said Governor Tiff Macklen in today’s press conference opening statement. “Recent inflation data suggest monetary policy is working largely as expected. But future progress on inflation is expected to be gradual and uneven, and upside risks to inflation remain. Governing Council needs to see further and sustained easing in core inflation.”
The Bank of Canada (BoC) had raised its key interest rate to 5% on July 12—marking the first time since April 2001 that the rate had hit the 5% mark. In June, the rate was raised to 4.75% following a period of holding steady at 4.5% from January onward. Before that pause, a series of rate hikes were made in an attempt to quell inflation, which had peaked at 8.1% in June 2022.
As part of its continued efforts, the Bank is aiming to bring inflation down to its stated 2% target. As of January 2024, inflation dropped to 2.9%— still above target, but lower than its June 2022 peak. However, while inflationary pressures are softening, the Bank notes that shelter costs still remain the biggest contributor to above-target inflation, adding “The Bank expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025.”
While forecasters predict the Bank will start cutting rates sometime in 2024, the timing is very uncertain. For now, let’s review what got interest rates where they are today.
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Bank of Canada Interest Rate Announcements: 2022 to Now
Big Six Banks Increase Their Prime Lending Rate
In response to the July 2023 rate increase, Canada’s big banks also raised their prime lending rates from 6.95% to 7.2%, which will particularly affect those with variable-rate mortgage holders, who have experienced high rates this year already, as their payments have continued to rise with every increase.
The increases that have already taken place added an average of $1,000 to the monthly payments on a $500,000 mortgage–and that’s before the latest increase. Even if you secured a $500,000 variable rate mortgage at the relatively low rate of 5.50%, a monthly payment of $3,195 will now go up to $3,320 after the latest increase.
If you once had a $500,000 mortgage with a variable rate of 1.50%, which wasn’t uncommon before the rate hikes above, your monthly payment was $1,998.60 and now it has jumped to $3,320 with a rate of 5.50%–a difference of $1,321.40 in a year and a half.
The Bank of Canada Is Holding Steady, For Now
The last rate hike may have been a surprise to some, since it generally takes 18 months to see the impact of previous rate hikes on the economy, and the Bank paused the rate at 4.50% for such a short time.
The next interest rate announcement is on April 10, 2024.
Time will tell whether further increases will further impact inflation, but Canadians will certainly feel even more financially squeezed in the meantime.
