Here’s the scoop on the most recent rate announcement. The Bank of Canada announced it’s leaving the overnight target rate unchanged at 5%. This decision was widely expected, keeping the bank’s prime rate at 7.2%.
In its statement, the Bank said it made the decision due to “recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy.” The impact of rate moves can often take up to 18 months to be fully felt. After the major increases over the past year and a half, there is a danger of overshooting and slowing the economy by too much.
They also said in the rate announcement, “However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed. Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the 2% inflation target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”
We can finally breathe again, for the time being. The hope is that unemployment will continue to climb and inflation will ease. Jobs data for July released at the start of August showed Canada’s job market lost about 6,000 workers during the month, increasing the unemployment rate slightly to 5.5%. This could allow The Bank of Canada to stop rate hikes and maybe even start announcing drops.
The Bank of Canada says it is ready to further hike rates if it has to. The next scheduled rate announcement is October 25, 2023.