The Bank of Canada says it will be holding its key interest rate unchanged at 0.25%.

The overnight lending rate has been kept on hold at its rock-bottom level since the onset of the pandemic, and the central bank has said it won’t increase the rate until the economy has recovered. This was expected to be sometime in mid-2022, but the annual rate of inflation reached 3.7% in July -- its largest increase in a decade -- leaving many critics to question the bank's strategy.

This jump in inflation was due in large part to the homeowners' replacement cost index rising 13.8% year-over-year, a cost directly related to the price of new homes. The nearly 14% jump was the biggest since 1987. According to Stat Can, "Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, was up 13.4% year over year in July."

In today's policy update, the Bank noted: "CPI inflation remains above 3 percent as expected, boosted by base-year effects, gasoline prices, and pandemic-related supply bottlenecks. These factors pushing up inflation are expected to be transitory, but their persistence and magnitude are uncertain and will be monitored closely." The Bank also noted that "Housing market activity pulled back from recent high levels, largely as expected".

It's no secret that the price of housing in Canada has skyrocketed since the onset of the pandemic, leaving little room for first-time buyers to find their way into the market (at least not without significant help from friends or family).

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Given the attention on the lack of affordable housing in the country, some thought a policy response from the Bank of Canada may have been in the cards. Speaking with BNN Bloomberg, National Bank Economist Warren Lovely noted that, “We’ve had a significant reliance on housing in our Canadian economic model. At the same time, affordability is getting away from a lot of Canadians and may require a policy response, not just from politicians contesting the election, but ultimately from our monetary policy makers as well.”

Indeed, cost of living has become the biggest issue for Canadians ahead of the September 20 election, and housing affordability will take centre stage at tomorrow night's leaders' debate.

Given that the vast majority of Canadians believe that low interest rates are responsible for the high cost of housing, we can assume many will be unsatisfied with the lack of change in the interest rate.

The Bank of Canada is set to make its next interest rate announcement on October 27 alongside the release of its quarterly Monetary Policy Report.