What the Bank did
The Bank of Canada held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. It's continuing quantitative tightening — shrinking the assets on its balance sheet to pull money out of the system.
The global picture
The Bank expects the global economy to keep growing at around 3%, with inflation in most advanced economies easing gradually. The US economy has been stronger than expected, driven by resilient consumer spending and robust business and government activity. US GDP growth is forecast to slow in the second half of 2024 but remain stronger than the January outlook suggested. The euro area should gradually recover from its current weak growth.
Global oil prices have moved up, averaging about $5 higher than the Bank assumed in its January Monetary Policy Report (MPR). Since January, bond yields have climbed, but overall financial conditions have eased thanks to narrower corporate credit spreads and sharply higher equity markets.
The Bank revised its global GDP growth forecast up to 2¾% in 2024 and around 3% in 2025 and 2026. Inflation continues to slow across most advanced economies, though progress will probably be bumpy. Inflation rates are expected to reach central bank targets in 2025.
What's happening in Canada
Economic growth stalled in the second half of last year, and the economy moved into excess supply — more capacity than demand. A broad range of indicators show that labour market conditions continue to ease. Employment has been growing more slowly than the working-age population, and the unemployment rate has risen gradually, reaching 6.1% in March. There are recent signs that wage pressures are moderating.
Economic growth is forecast to pick up in 2024, largely because of strong population growth and a recovery in household spending. Residential investment is strengthening, responding to continued robust demand for housing. Spending by governments has also contributed more to growth. Business investment is projected to recover gradually after considerable weakness in the second half of last year. Exports are expected to continue growing solidly through 2024.
Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026. The strengthening economy should gradually absorb that excess supply through 2025 and into 2026.
Where inflation stands
CPI inflation slowed to 2.8% in February, with easing price pressures becoming more broad-based across goods and services. But shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
Core measures of inflation, which had been running around 3½%, slowed to just over 3% in February. Three-month annualized rates suggest downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of 2024, move below 2½% in the second half, and reach the 2% target in 2025.
What the Bank is watching
Based on this outlook, Governing Council decided to hold the policy rate at 5% and continue normalizing the Bank's balance sheet. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained.
Governing Council is particularly watching the evolution of core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.
What this means for your mortgage
The Bank held rates steady, but it's clearly watching for sustained proof that inflation is cooling. If you're coming up for renewal or shopping for a mortgage, talk to us about where rates might be heading and what term makes sense for your situation. Strategy beats guesswork every time.
Reach Matt at [sayhello@hellomortgage.ca](mailto:sayhello@hellomortgage.ca).
