On April 12th 2023, the Bank of Canada (BoC) announced that it will be keeping the interest rate steady at 4.5%, marking the second meeting with no change. While this decision was widely expected by economists and analysts, it is significant in the context of recent efforts to control inflation.
Inflation has been a concern for policymakers and consumers alike, and the Bank of Canada has been working to bring it under control. The decision to keep interest rates steady is part of this effort, and the Bank of Canada expects inflation to ease in the coming months. It has set a target inflation rate of between 1% and 3%, and is confident that inflation will fall below the upper end of this range around June or July and under 2% towards the end of 2024.
The Canadian economy as slowed down in the past 12 months. However, the BoC increased their expected growth of the Canadian economy to 1.4%. So, they may have achieved their goal of inflation control without creating a deep recession. However, we should not expect the variable rate to decrease before at least the end of the year or even next year. They want to make sure that inflation will not come back. The next meeting will be on June 7th.
For your mortgage, this is great news. There is no change. If you have a preapproval you are more likely to have a fixed rate than a variable rate, so, there is no change for your qualification amount either. Another great news for variable rate holders is that fixed rates went down quite a bit since the last meeting. There is therefore a good potential for those that would like to switch from variable to a fixed rate. The only outlier to this statement is Scotiabank that is stubbornly stuck with higher rates. However, before proceeding, I strongly suggest that you contact me to discuss the move.
For those planning to buy, I suggest starting sooner rather than later. The fixed rates have been going down for some time now and this as translated into a market that has bottomed. Sales and prices have started to rise. The inventory (number of property for sale) is tightening, meaning that for some price points and locations, we start seeing multiple buyers for some properties. Unless, sellers join the market in drove, we should see a market that will have upward price pressure for the rest of the year.
I get a lot of questions about the Silicon Valley Bank (SVB) bank run, so just a quick word on this. The US banking system is very different than the Canadian one. It is really unlikely that a Canadian bank will have the same fate as SVB. For starter, Canadian bank are not local banks, they operate across the country, they are also a lot more regulated than the American banks. Canadian banks have a reserve of 200 Billions with the BoC, so they have access to cash if needed. So for the moment, there is nothing to fear on this side of the border, and we should enjoy the low rates that the SVB turmoil created.
Have a great day.