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The Bank of Canada Says 'Hold Your Horses': What It Means for Your Mortgage

January 25, 2024 | Posted by: Dallas Martin

Ready for a fresh scoop from the finance world? No, it's not about a lost calculator or a misplaced pie chart. It's more intriguing - the Bank of Canada has held its target for the overnight rate at a whopping 5%.

Why should you care? Well, let's break it down in plain English, shall we?

A Peek into the Crystal Ball

First, let's gaze into the future. According to the experts, the Bank of Canada is likely done raising rates and will hold them at 5.00% for at least six months. And here's where it gets interesting: predictions are swirling that the Bank will start slicing rates in June.

'But wait,' you might say, 'what does all this talk about benchmark rates have to do with my mortgage?' Good question! Let's break it down.

See, the Bank of Canada's benchmark rate is like the conductor of a financial orchestra. It sets the tempo for the lending rates that banks and other financial institutions offer consumers and businesses. So, when the benchmark rate changes, so do the interest rates on things like loans, credit cards, and your mortgage.

Banks typically hike their interest rates if the benchmark rate goes up. Why? Well, it's more expensive for them to borrow money, and they pass those costs onto you. This means your mortgage payments could go up if you've got a variable-rate mortgage or coming up for renewal.

Conversely, borrowing becomes cheaper for the banks if the benchmark rate goes down. Theoretically, they should pass these savings onto you, which could mean lower mortgage payments.

So, whether you're hunting for a new home or just keeping tabs on your current mortgage, remember to keep an eye on the Bank of Canada's benchmark rate. Because, like it or not, the Benchmark Rate affects us all!

The Global Picture

On a global scale, economic growth is hitting a slow stride, and inflation is starting to put its feet up across most economies. Our friends in the U.S.? They're bracing for a slower pace in 2024. Less spending and less investing are on the agenda.

As for Europe and China? The euro area is feeling a tad under the weather, and China's wrestling with some confidence issues and policy uncertainty.

But wait, there's good news! Oil prices are lower than we thought they'd be. So, we've got that going for us, which is nice.

Oh Canada

Back here in Canada, our economy has hit the snooze button. Growth is expected to hover near zero through Q1 2024.

Why the economic naptime, you ask? Well, Canadians are closing their wallets in response to higher prices and interest rates. Business investment has
also taken a tumble.
And what about jobs? Even though the labour market conditions have eased, wages are still climbing.

What's Next?
So, what does the future hold for our economy? Economic growth is expected to pick up speed around mid-2024. By the year's second half, we should see an uptick in household spending, exports, and business investment.

Inflation? It ended the year at 3.4%. The Bank expects it to hover around 3% for the first half of this year before it starts to take a breather, aiming for the 2% target in 2025.

The Bank of Canada has decided to keep the policy rate at 5% and continue normalizing its balance sheet. They're keeping their eyes peeled for any risks to the inflation outlook and are committed to restoring price stability.

In short, the Bank of Canada is telling us to hold onto our hats, hoping for smoother sailing ahead. But remember, when it comes to interest rates, it's a bit like a rollercoaster ride. So buckle up, keep your hands inside the vehicle at all times, and try to enjoy the ride. Stay tuned for more updates!

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