What the Bank did
On January 24, 2024, 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 also continuing quantitative tightening — the process of shrinking the balance sheet it expanded during the pandemic.
The global picture
Growth is slowing around the world, and inflation is coming down gradually in most places. The U.S. economy has been stronger than expected, but the Bank anticipates it will slow in 2024 as consumer spending and business investment cool. Europe looks to be in a mild contraction, and in China, low consumer confidence and policy uncertainty are weighing on activity.
Oil prices are about $10 per barrel lower than the Bank assumed back in its October Monetary Policy Report. Financial conditions have loosened — largely reversing the tightening that happened last autumn.
The Bank now forecasts global GDP growth of 2.5% in 2024 and 2.75% in 2025, down from 3% in 2023. With softer growth this year, inflation in most advanced economies is expected to ease slowly and hit central bank targets in 2025.
What's happening in Canada
The Canadian economy has stalled since the middle of 2023, and growth will likely stay close to zero through the first quarter of 2024. You've pulled back on spending in response to higher prices and interest rates, and businesses have cut investment. Supply has caught up with demand, and the economy now appears to be operating with a bit of extra capacity.
The labour market has cooled. Job vacancies are back near pre-pandemic levels, and new jobs are being created more slowly than the population is growing. That said, wages are still rising around 4% to 5%.
Growth is expected to pick up gradually around the middle of 2024. Household spending will likely strengthen in the second half of the year, and exports and business investment should get a lift from recovering foreign demand. Government spending will contribute materially to growth through the year. Overall, the Bank forecasts GDP growth of 0.8% in 2024 and 2.4% in 2025 — roughly unchanged from its October projection.
Inflation and the path ahead
CPI inflation ended 2023 at 3.4%. Shelter costs remain the biggest driver of above-target inflation. The Bank expects inflation to stay close to 3% during the first half of 2024 before easing gradually and returning to the 2% target in 2025.
While the slowdown in demand is reducing price pressures across more categories and corporate pricing behaviour continues to normalize, core measures of inflation aren't showing sustained declines yet.
The Bank's decision and what it's watching
Given the outlook, Governing Council decided to hold the policy rate at 5% and continue normalizing the Bank's balance sheet. The Council is still concerned about risks to the inflation outlook, particularly the persistence in underlying inflation.
Governing Council wants to see further and sustained easing in core inflation. It continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains committed to restoring price stability.
The next scheduled rate announcement is March 6, 2024. The Bank will publish its next full outlook for the economy and inflation in the Monetary Policy Report on April 10, 2024.
What this means for your mortgage
If you're renewing or shopping for a mortgage, this hold gives you a window to lock in a strategy. Rates aren't falling yet, but the economy is soft and inflation is easing — slowly. That means the next move, when it comes, is more likely to be down than up.
Your best move? Talk to a mortgage broker who can map out your options now and help you position for what's coming. Reach out at [sayhello@hellomortgage.ca](mailto:sayhello@hellomortgage.ca).
