Bank of Canada Holds Rate at 5%
The Bank of Canada maintained its key interest rate at 5% on Wednesday, March 6th, reiterating its commitment to battling inflation despite some recent progress. Governor Tiff Macklem emphasized the need for continued vigilance, acknowledging both lingering risks and the gradual nature of monetary policy's impact.
While economists largely anticipated the decision, the Bank's stance came across as "more hawkish than expected", according to Citi Bank economist Veronica Clark. This suggests a cautious approach, potentially delaying the first-rate cut anticipated by many.
Underlying Inflation Remains a Concern
Bank of Canada: Canadian Inflation Rate
The Bank's decision reflects its ongoing concern about underlying inflation, excluding volatile items like food and fuel. Governor Macklem highlighted external factors like disruptions to global shipping, which could exacerbate inflationary pressures if they escalate. Additionally, domestic progress in curbing inflation is expected to be gradual, potentially stalling and jeopardizing the Bank's 2% target.
Canadians Face the Squeeze
The decision to hold rates has significant implications for Canadians, particularly those with variable-rate mortgages.
According to Equifax Canada’s latest Market Pulse Consumer Credit Trends report, many Canadians struggle to make monthly debt payments. Delinquency rates for non-mortgage balances that are 90+ days overdue went up from one per cent at the end of 2023 to 1.3 per cent (one in a hundred Canadians). Over the last year, mortgage delinquency rates saw a 52% increase to 0.14%.
Ontario and BC have been particularly affected, with mortgage delinquency rates soaring by 135.2 per cent and 62.2 per cent, respectively.
Uncertainties Ahead
The Bank of Canada anticipates inflation staying elevated around 3% for the first half of 2024 and gradually easing after that. While some economists predict the first rate cut in June or July, the Bank emphasizes the need for continued observation and data-driven decisions. Potential economic weakness in the United States, which could significantly impact Canada, further complicates the situation.
The Bank of Canada's decision to hold rates reflects a delicate balancing act between curbing inflation and supporting economic growth. While some Canadians face immediate challenges, the Bank's cautious approach aims to ensure long-term financial stability. The coming months will be crucial as the Bank navigates these uncertainties and weighs further adjustments to monetary policy.
