The economy grew at a slower pace in the first quarter of the year with GDP AT 1.70% and which was lower than what the Bank of Canada had expected.
While Canada’s labour market added a surprise 90,000 jobs in April, underlying weakness reinforced that economic slack is still rising.
Wage pressures remain but appear to be moderating.
The economy is still operating in excess supply and the BoC is looking to balance supply and demand.
Canada’s inflation rate slowed to 2.70% in April and measures of core inflation also eased and we are near the historic average. Shelter price inflation remains high, though.
The risks to inflation still remain but recent data has increased the BoC’s confidence that inflation will continue to move towards their 2% target.
What does this all mean for the bond market? Bonds yields immediately dropped as the news of the BoC rate announcement came out with the 2 year bond dipping below 4% (last seen in Feb. 2024). Expect some slight downward movement on current fixed rates.
What does this mean for mortgage rates? Expect the major banks to lower their Prime Lending rate by 0.25% to 6.95% which will then decrease the borrowing rate for variable rate mortgage holders.
Are we out of the woods yet? Today’s BoC announcement was indeed positive but the BoC will remain vigilant with regards to inflation and are resolute in restoring pricing stability for Canadians.
The next scheduled date for announcing the overnight rate target is July 24, 2024.
Keith Baker | kpbaker@shaw.ca | 604.723.5363
Jackie Zerbe | jacqueline@totalmortgage.ca | 604.724.6982
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