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  • Keith&Jacqueline

The BoC held its target for the overnight rate at 5% and is continuing its policy of quantitative tightening. 

The BoC has now maintained this rate of 5% since July 12, 2023.

Inflation still remains sticky but the BoC expects inflation to slow across most advanced economies, although progress will likely be bumpy. Inflation rates are projected to reach central bank targets in 2025.

Where is the good news? Well, the BoC still forecasts economic grow to pick up in 2024 and forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026. 

What is the news on bond yields? Since January 2024 bond yields have increased and remain volatile. The Canadian 2 year bond rose to 4.345%, today, and the 5 year bond rose to 3.75% and this primarily due to a negative US CPI print of 3.50% (today) whereas the market expected a US CPI print of 3.40%. All of a sudden the world is collapsing with the DOW dropping 500 points. This is all, hopefully, a knee-jerk reaction of the market.

What does this mean for mortgage rates? Higher bond yields put pressure on fixed mortgage rates to increase but have no effect on variable rate mortgage holders.

What are we looking out for next? The Canadian CPI for February was 2.80% down from 2.90% for January. The next CPI reading comes out on April 16 and this will give us a clearer picture as to how the BoC’s actions are dealing with inflation. Another drop in the CPI will lead to lower bond yields and vise versa.

The BoC still sees shelter price inflation being very elevated, driven by growth in rent and mortgage interest costs but expects CPI inflation to be close to 3% during the first half of this year, moving below 2½% in the second half, and reach the 2% inflation target in 2025. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the BoC will be looking for evidence that this downward momentum is sustained before they alter their course of action and look at decreasing the overnight lending rate. The next scheduled date for announcing the overnight rate target is June 5, 2024.

Keith Baker | | 604.723.5363

Jackie Zerbe | | 604.724.6982

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