Bank Of Canada Holds Interest Rate At 5%

As expected, the Bank of Canada opted to hold its policy interest rate at 5% on Wednesday.

This is the third pause in rate hikes the bank has chosen to exercise as more Canadians grapple with decreased affordability and fears of mortgages renewing at much higher rates.

"With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet," the Bank of Canada said in its announcement.

Leading up to the central bank's announcement on Wednesday, economists across the board predicted a pause, though the bank warned last month that a rate hike was not off the table as high housing prices continued to stand in the way of disinflation. This is something the bank reiterated in Wednesday's announcement, noting that "shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs."

Although they opted for a hold, the Bank of Canada's Governing Council is "still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed." Inflation fell to 3.1% in October, moving closer to the bank's target of 2%, but Governing Council says it "wants to see further and sustained easing in core inflation." As Bank of Canada Governor Tiff Macklem said at the end of November, "one month is not a trend."

"We need to see a number of months to see clear evidence that we're on a path to 2% inflation. When we see clear evidence, [...] that will be a time to start thinking about cutting interest rates," Macklem said at the time.

Today's announcement marks the final one of the year from the Bank of Canada. Over the past 12 months, Canadians have collectively held their breath every time the bank made an announcement, praying for a cut but bracing for a hike.

The year started off with a 25-basis-point increase, bringing the policy rate to 4.5%. It was then followed by two consecutive rate holds as inflation eased and the economy remained flat. But by June, the rate hikes began again, with two consecutive 25-basis-point increases, bringing the bank's rate to 5% — a 22-year high — in July.

Since then, the bank has chosen to hold its rate at each announcement, with many experts expecting that to remain the case into 2024, with rate cuts not expected until Q2 or Q3, depending on who you ask. One thing that can be agreed upon, though, is that the bank, when it does decide to lower rates, won't do so with anywhere near the same speed at which they raised them. With 60% of Canadian mortgages up for renewal in the next three years, many purchasers could be in for quite the payment shock when their time comes.

Looking forward, the bank says it will continue to focus on "the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour."

"The Bank remains resolute in its commitment to restoring price stability for Canadians," the announcement concludes.