on October 26, 2023 
On Wednesday October 25th at their regular policy meeting, the Bank of Canada (BoC) again decided to keep their Policy Rate steady at 5 per cent. This means that most banks 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 mortgage holders.
This is the second meeting in a row where the BoC has kept its policy rate unchanged. Recent economic reports over the last month have all indicated that our national economy is slowing down under the pressure of high interest rates, and we believe the interest rate hikes from the spring and summer are still working through the economy and will continue to have negative effects through the winter.
One of the most important factors to the BoC is our national inflation rate, and we learned on Oct 17th that the September inflation rate came down to 3.8 per cent (compared to 4 per cent for August) and that this was lower than most economists were expecting. Even more importantly, the report showed that the decline was relatively ‘broad based’ and included drops in travel, durable goods and some grocery items. Groceries are a particular concern in the battle against inflation because they’re an essential good, their prices rose so substantially during the pandemic, and it is one of the categories that has been staying stubbornly high while other inflation categories have been coming down over the summer. From September 2021 to September 2022 grocery prices increased 11 per cent. But from September 2022 to September 2023, grocery price increases slowed to 5.8 per cent. This is still higher than the 2 per cent we want to see for the BoC to be happy, but it is finally at least trending in the right direction.
Looking forward, we expect that inflation will continue to slowly decline over the next 12 months as high interest rates continue to weigh on household finances and reduce discretionary spending on things like restaurants, entertainment and tourism, and durable goods. However, we believe that it is going to be at least another 8-12 months before inflation gets low enough that the BoC will be able to start lowering its Policy Rate and begin providing some financial relief to households and businesses. In the meantime, it looks like we’re in for a long winter of economic contraction and the best we can do is hunker down, weather the storm and wait for the better days to come.
If you know anyone whose mortgage is renewing in the next 6 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.
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