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The Bank of Canada dropped its scheduled interest rate update at 10 am on Wednesday, announcing a rate hold after eight consecutive hikes since March 2022, when it stood at 0.5%.

Throughout 2022, the bank hiked its interest rate seven times. Another increase followed in January of this year, bringing the key rate to 4.5%. Throughout its rate hike updates, the Bank of Canada has repeatedly cited inflation as the core reason for its decisions.

The central bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on April 12, 2023.

Inflation fell to 5.9% in January.

“Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” reads the Bank’s press release. “Year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3.5%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.”

Experts had anticipated a rate hold was in store for March, marking the first slowdown after several major rate hikes.

Ratehub.ca co-CEO and president of CanWise mortgage lender James Laird was one of the experts predicting that the bank will hold the key overnight rate at 4.5%. He shared his thoughts with Daily Hive.

“This is the Bank’s chance to comment on all of the economic and inflation data they have received since their last announcement in January.”

Impact on Canadian homeowners

Laird believes this is good news for people with variable-rate mortgages, and anyone with a home equity line of credit (HELOC).

“Fixed-rate mortgages will change based on the Bank’s forward commentary. If the Bank alludes to the need to hike rates further, we will see bond yields rise and fixed rates will follow,” he said.

“Anyone shopping for a home should get a pre-approval to hold today’s rates for up to 120 days. This will allow them to secure today’s rates, and if rates drop further, they will still be eligible for the lower rates.”

Impact on home prices

Laird believes that if the bank shows conviction in holding the rate in the future, it could provide support for home values.

“If the Bank alludes to further rate hikes, this will put downward pressure on home values across Canada,” he concluded.

Have interest rake hikes helped Canadians so far?

In an announcement on February 8, the Bank of Canada said its robust interest rate hikes have had the following effects so far:

  • Borrowing rates have gone up for households and businesses.
  • Spending has declined, especially on housing and big-ticket items like furniture and appliances.
  • The job market is tight, but small signs indicate that higher rates are starting to cool it down.
  • Inflation is falling too — partly thanks to lower global energy prices and improved supply chains, but also thanks to lower demand here in Canada.
  • Fewer businesses think high inflation will last. That matters because expectations about inflation affect decisions on prices and wages.
  • The next scheduled date for announcing the overnight rate target is April 12, 2023.
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