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On Wednesday December 6th at their regular policy meeting, the Bank of Canada (BoC) once more decided to keep their Policy Rate steady at 5 per cent. This means that most lenders will hold their consumer Prime Rate steady at 7.20 per cent and there will be no changes to the payment amounts for variable rate mortgages.

It’s the third time in the row that the BoC has decided to leave the policy rate unchanged. In its announcement, the BoC explained that it is seeing the broader global economy slow and inflation ease, and even in the US where growth has been stronger than expected recently, it predicts that things will begin weakening in the coming months as the restrictive fiscal policies of the last few months continue to work through the economy. Here at home, the Canadian economy has stalled out, with meager growth of 1.4% in the second quarter (April – June) followed by a contraction of 1.1% in the third quarter (July – September). 

It’s now clear to everyone that our economy is weakening into recession territory. Consumption growth has flatlined over the last 2 quarters, business investment has stalled out over the last 12 months, and the labour market is slowing – businesses are not creating as many new jobs as there are new people entering the labour market, the number of job vacancies is declining, and unemployment is trending up. While this is definitely bad news in some ways, its actually good news for the BoC’s fight against inflation.

There’s also good news on the much discussed CPI – consumer price index – inflation measure. CPI inflation fell from 3.8% in September to 3.1% in October, helped substantially by lower gasoline prices (compared to October 2022) and some stabilization in staple grocery and food prices over the last few months.

There is still a long way to go before we expect the CPI inflation to reach 2%, the target where the BoC considers inflation to be “under-control” and reflecting stability in the economy.  However, we believe that the rate hikes that have already occurred are still working to slow down inflation and they will be enough to keep inflation dropping over the next 3-6 months.

In other words, it looks likely that we are at the peak of this BoC policy rate hike cycle, and that the next moves by the BoC will be small rate cuts starting in the summer of 2024 and continuing through 2025.

If you know anyone whose mortgage is renewing in the next 6-12 months, please encourage them to get in touch with us to discuss the best strategy for their goals. Since we’re at the peak of such a substantial rate increase cycle, it’s even more important than usual to plan ahead and be ready to take advantage of the lower rates that will likely be available in 2025 and 2026.

And if you haven’t already, I’d encourage you to read our article about the coming wave of fixed rate mortgage renewals over the next 2 years and the impact those will have on the economy. 

Have questions?

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Please book an appointment today with one of our broker team to discuss your plans and we’ll make sure you have all the information you need to make the best financial decision and get the best mortgage to reach your goals.

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