Canada Housing Market

The Bank of Canada made a significant decision by raising its benchmark interest rate by 25 basis points, bringing it to a notable five percent, a level unseen since April 2001. This move was widely expected by economists due to the positive indicators from the June labour force survey released by Statistics Canada. The survey revealed that Canada added 60,000 jobs the previous month, further fueling concerns of an overheated economy.

However, experts hold diverging opinions regarding the possibility of future rate hikes after the summer. Desjardins economist Royce Mendes offered a glimmer of hope, noting that the Bank of Canada did not completely dismiss the idea of further tightening of monetary policy. On the other hand, CIBC economist Andrew Grantham took a more hawkish stance, suggesting that the risks lean toward another hike after the summer.

This latest rate hike marks the tenth increase implemented by the Bank of Canada since March 2022. The central bank had paused its series of hikes in January for a few months to assess whether the economy had cooled sufficiently before resuming its campaign in June.

In explaining their decision, the Bank of Canada stated that global inflation is easing, driven by lower energy prices and a decline in goods price inflation. However, they emphasized that persistent inflationary pressures in the services sector persist due to robust demand and tight labor markets.

The bank also recognized the resilience of Canada’s economy, which has outperformed expectations. However, their updated projections now suggest that it will take longer than previously anticipated to achieve the two percent inflation target. Despite the rate hikes intended to curb consumer spending, the bank highlighted the presence of “excess demand” in various sectors, particularly in retail. The booming population of Canada plays a significant role in driving job growth, increased spending, and heightened demand for housing.

In terms of inflation, Canada’s inflation rate moderated to 3.4 percent in the year leading up to May, indicating a slight deceleration compared to previous months.

In summary, the Bank of Canada’s decision to raise the benchmark interest rate reflects its ongoing efforts to manage economic stability. While the impact on consumers remains a topic of debate, the central bank’s actions demonstrate its commitment to addressing inflationary pressures and maintaining a balanced economic outlook.