This morning, the Bank of Canada announced that they have increased its key interest rate once again by 0.25%. The prime rate will be increased from 6.95% to 7.20%. Therefore, for those who have a variable rate credit product, payments may increase by approximately $15.48 per month for every $100,000 loan.
Global inflation is easing due to lower energy prices and a decline in goods price inflation. Economic growth is stronger than expected, and consumer and business spending has been resilient. However, major central banks indicate that further interest rate increases may be required in order to combat inflation.
The Bank expects consumer spending to slow in response to the recent increases in interest rates, but recent retail trade and other data suggests more persistent excess demand in the economy.
The housing market has also seen some pickup. New constructions and real estate listings are lagging demand, which is adding to the pressure in prices. However, strong population growth from immigration and newcomers are adding both demand and supply into the economy, and we are seeing a demand for housing.
Inflation in Canada eased to 3.4% in May, largely due to lower energy prices, and less from easing underlying inflation. Price pressures appear to be more persistent than anticipated, and businesses are still increasing their prices more frequently than normal.
CPI inflation is expected to hover around 3% for the remaining year before gradually declining to 2% in mid-2025. This is a slower return to the target than forecasted in the January and April projections. The Governing Council remains concerned that the progress towards the 2% target could stall, raising concerns in returning to price stability.
Based on this, the Governing Council has decided to raise the interest rate. Reducing money supply continues to complement the interest rate, and the dynamics of core inflation and outlook for CPI inflation will continue to be assessed. The Bank remains committed to restoring price stability for Canadians and achieving the 2% inflation target.
The next Bank of Canada announcement will be on September 6, 2023.
If you'd like to learn more about this recent announcement or would like to know how this affects you, please feel free to reach out to us and we'd be happy to help!
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