Bank of Canada leaves interest rate unchanged for the first time in over a year

Some fairly good news for home buyers or those with a mortgage — the Bank of Canada has opted to hold the key interest rate.

Since March 2 last year, the Bank of Canada has steadily increased what’s known as the overnight rate or key policy rate. In the last announcement in January, the rate was raised to 4.5 per cent — the highest it has been since 20o7.

But today (March 8), the Bank of Canada held its target for the overnight rate at 4.5 per cent, the Bank of Canada said in a press release.

The overnight rate determines how much interest the Bank of Canada wants commercial banks to charge.

So each time the rate goes up, the cost to get a mortgage increases. Home prices have dropped since the first rate hike in March last year as people struggle to afford mortgages to buy a home.

But increasing the rate has cooled inflation. Everything from food prices to energy costs and real estate have skyrocketed in recent years.

It was widely expected that the Bank of Canada would hold the rate as global inflation slows.

Inflation, while still too high, is coming down due primarily to lower energy prices, the Bank said in the press release.

The impact of Russia’s war in Ukraine and the strength of China’s economic recovery remain key sources of risk. But financial conditions have tightened since January, and the U.S. dollar has strengthened.

In Canada, economic growth came in flat in the fourth quarter of 2022, lower than the Bank projected.

Inflation eased to 5.9 per cent in January, reflecting lower price increases for energy, durable goods and some services.

But price increases for food and shelter remain high, causing continued hardship for Canadians, the Bank noted.

Bank of Canada maintains policy rate, continues quantitative tighteninghttps://t.co/WLSpobJs0D#economy #cdnecon

— Bank of Canada (@bankofcanada) March 8, 2023

With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

The labour market remains very tight. Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated, the Bank said.

Wages continue to grow at four to five per cent, while productivity has declined in recent quarters.

While the rate is holding for now, an increase could still come in the spring, the Bank of Canada indicated.

The governing council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the two per cent target, the Bank said.

The next announcement on the overnight rate is April 12.