The BoC holds off on another rate increase as Canada’s inflation falls to 3.8%. In its October decision, the Bank of Canada kept its key interest rate at 5%. Here is an analysis of the key points, and what they mean for homeowners and buyers in Mississauga and the GTA.
This post was first written in October 2023. The figures below are from that rate decision.
Why the BoC Holds Off at 5%
The Bank of Canada chose to keep its key rate at 5%. By doing so, it lets earlier rate hikes take full effect. The move aims to curb inflation and keep the Canadian economy stable.
In plain terms, the bank has already raised rates a lot. It now wants time to see how those hikes work before it does more.
Inflation Remains the Main Concern
The central bank is still worried about inflation, which has stayed high. Despite the rate hikes, progress on inflation has been slow and uncertain. That caution suggests more hikes are still on the table if needed. So even though the BoC holds off today, it has not closed the door.
The bank expects inflation to return to its 2% target by 2025. However, it gave no timeline for rate cuts. Economists believe that cuts, or even talk of them, are unlikely soon because core inflation remains high.
A Weaker Growth Forecast
The Bank of Canada expects weaker economic growth for the rest of the year. It points to several factors. For example, the Israel-Hamas war could affect global oil prices. In addition, Canada faces housing supply shortages. These factors add to economic uncertainty.
The bank’s October Monetary Policy Report projects GDP growth of 1.2% in 2023, 0.9% in 2024 and 2.5% in 2025. These figures are lower than its earlier forecasts. With growth this slow, the BoC holds off rather than risk pushing the economy too hard.
The Rate-Hike Campaign Behind the Pause
Since March 2022, the bank has run an aggressive rate-hike campaign. It raised the key overnight lending rate from 0.25% to 5%. The goal is to cut consumer and business spending and so bring inflation under control.
The bank is also careful about pausing this campaign. It does not want real estate prices to surge again. That is one more reason the BoC holds off on cuts, even as it pauses hikes.
For a fuller look at how 3.8% inflation affected housing, read my post on Canada’s inflation easing to 3.8%.
Stagflation Risks as the BoC Holds Off
Some worry that global economies may be entering a period of stagflation. That means a stagnant economy combined with high inflation. It is a hard mix for any central bank to manage.
Rate hikes are the Bank of Canada’s main tool to fight inflation. Yet this tool has limits, especially against outside forces like global commodity prices. A higher Canadian rate cannot lower the world price of oil, for instance.
Bank Governor Tiff Macklem stressed a positive point. Despite inflation concerns, Canada’s unemployment rate is below historical norms. That shows the labour market continues to fuel economic activity.
What It Means When the BoC Holds Off
In summary, the Bank of Canada is keeping its key rate steady while it watches inflation and its effect on the economy closely. Its next move will depend on many economic signals and outside factors.
A pause does not mean rates will fall soon. Rather, it means the bank is waiting for proof that inflation is on its way down. While the BoC holds off, your mortgage payment on a variable rate stays where it is. That gives you a window to review your budget, build savings and plan your next step without guessing.
For homeowners and buyers, a hold brings a short break from rising payments. Here is how to use it well:
- Buyers: get a pre-approval and test your budget at a higher rate.
- Owners near renewal: talk to your lender early and compare offers.
- Sellers: price your home to match recent sales, since buyers remain careful.
Rates have moved a great deal since this decision. To see what came next, read my post on the January 2024 rate hold.
Talk to a Mississauga real estate agent
Do you have questions about interest rates and your next move? I am happy to help. Call A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage, at 416 908 5600, or send me a message. And if this post helped you, a Google Review is always appreciated.
Disclaimer: this article was published on 18 January 2025 and reflects the information available at that time. Interest rates, prices, and government programs change, so check the current position before acting on anything here. It is provided for information only and is not financial, mortgage, tax or legal advice. A. Q. Mufti is a registered Sales Representative with RE/MAX Real Estate Centre Inc., Brokerage, Ontario, Canada.
