What the Bank decided
The Bank of Canada held its target for the overnight rate at 5%, with the Bank Rate at 5.25% and the deposit rate at 5%. It's continuing to shrink its balance sheet — the unwinding process called quantitative tightening.
For your mortgage, that means the prime rate isn't moving yet. Variable-rate holders stay put, and fixed rates (which move with bond yields) have actually climbed a bit since January.
The global picture
Global growth slowed in the fourth quarter of 2023. US GDP growth also slowed but stayed surprisingly strong, driven by consumer spending and exports. The euro area flatlined after shrinking the quarter before.
Inflation in the United States and the euro area kept easing. Bond yields have risen since January even as corporate credit spreads tightened. Stock markets jumped. Oil prices edged up slightly from what the Bank assumed in its January forecast.
How Canada's economy performed
Canada's economy grew more than expected in the fourth quarter, though the pace was still weak and below what it could sustain long-term. Real GDP expanded by 1% after contracting 0.5% the quarter before.
Consumer spending was up a modest 1%. Final domestic demand actually fell, pulled down by a steep drop in business investment. A strong jump in exports did most of the heavy lifting on growth.
Employment is growing more slowly than the population, and there are now early signs that wage pressures may be easing. Taken together, the data suggest the economy has a bit of slack — slightly more supply than demand.
Where inflation stands
CPI inflation eased to 2.9% in January, as goods prices continued to cool. Shelter costs remain the biggest driver of inflation and are still elevated.
Underlying inflation is still sticky: year-over-year and three-month measures of core inflation sit in the 3% to 3.5% range. The share of CPI components rising above 3% came down but is still above the historical average.
The Bank expects inflation to stay close to 3% for the first half of 2024 before gradually easing.
Why the Bank held steady
Governing Council decided to hold the policy rate at 5% and keep normalizing the Bank's balance sheet. It's still concerned about risks to the inflation outlook — especially how long underlying inflation is taking to settle.
The Council wants to see more sustained easing in core inflation. It's watching the balance between demand and supply, inflation expectations, wage growth, and how businesses are setting prices. The Bank says it remains committed to restoring price stability.
What this means for your mortgage
If you're on a variable rate, your payment isn't changing yet. If you're shopping for a fixed rate or coming up for renewal, expect rates to hold or edge up slightly while the Bank waits for inflation to cool further.
The next rate announcement is April 10, 2024, when the Bank will also release a full economic forecast. Until then, the strategy is the same: lock in certainty if you need it, or hold tight if you can handle the wait.
Find the full report on the Bank of Canada website.
