July 12, 2023 | Homeownership
The Bank of Canada suddenly increased its key interest rate by 0.25% this morning, bringing it to 5%. The move was somewhat expected due to the strong performance of the economy. The central bank cited high demand and underlying inflation pressures as reasons for the increase.
While there have been some recent indicators of a slowdown, such as a decrease in inflation to 3.4%, a weak May job report, and a surprising trade deficit in May, the market could very well see another rate hike in the months to come.
Despite nine rate increases since March of last year, totalling 450 basis points, the economy has remained resilient and the housing market has shown signs of improvement. In May, the economy regained momentum, potentially growing by 0.4% after coming to a halt in April.
The central bank’s updated economic projections suggest that it will take longer to achieve the 2% inflation target. Inflation is expected to remain around 3% for the next year before gradually decreasing to 2% by mid-2025.
It is unclear whether there will be another rate increase in September, as the governing council will continue to monitor the economy’s progress.
This report sources The Canadian Press and was first published on July 12, 2023.