As widely expected, the Bank of Canada, in its most recent meeting, held interest rates steady for the first time in the past calendar year, pausing the sharpest increase in interest rates in a generation.  Their move was not entirely unexpected as they indicated in their previous meeting that they were happy with the resulting dip in inflation their monetary policy had on the economy.

The Consumer Price Index is the yardstick with which inflation is measured.  The Bank of Canada strives to ensure that inflation is kept at the 2% mark year over year. In June 2022, that number reached over 8%, making it the highest spike in inflation seen in the country in over 40 years.  Since the crown corporation started its rate hikes last March, the inflation percentage has dipped to 5.9% in January 2023, with the central bank expecting it to fall to a much more manageable 3% by the middle of this year.

While bank officials have indicated optimism by pausing the rate hikes, they do so conditionally, being prepared to raise rates higher should economic activity outperform their expectations.

“The big picture remains unchanged: the bank needs the Canadian economy to slow materially in the coming months if it is going to return to 2% inflation,” said Andrew Kelvin, chief Canada strategist at TD Securities.

With oil prices dropping since the summer and supply chain issues slowly being rectified, the trend towards lower goods prices is promising. This being said, the Bank of Canada expects a near zero growth for the first three quarters of 2023. If it is correct, the rate of inflation may be very close to the predicted 3%, only 1% above their yearly goal.

Fixed rates continue to remain relatively stable over the last while moving up and down within a narrow range. With the fall of SVB Financial in the US recently we saw bond prices and therefore 5 year fixed rates drop slightly in the last week. Only time will tell if this trend will continue.

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