Mortgage Blog

Bank of Canada Rate Announcement - December 7, 2022

December 7, 2022 | Posted by: Ken Fadel

The Bank of Canada announced another 50 bps hike to its benchmark rate today, raising the overnight rate to 4.25%.  This latest hike sees the rate sitting at a level not seen since 2008.  2022 has seen seven increases (totalling 400 bps) the target rate.

The move was widely anticipated, with the only debate surrounding whether it would a 25 or 50 bps hike.  The BoC stated that it “will be considering whether the policy interest rate needs to rise further,” a clear departure from the hawkish tone of previous months when it stated further rate increases were definitely necessary.

GDP growth in the past quarter was stronger than expected as the economy continues to operate in excess demand. Unemployment numbers are near historic lows as the country’s labour market remains tight.  While commodity exports remain strong, there is growing evidence that tighter monetary policy is affecting domestic demand.   Consumption numbers moderated in the third quarter, and housing market activity continues to decline.  As such, the BoC’s outlook that growth will essentially stall through the end of 2022 and the first half of 2023 is unchanged.

CPI inflation remained elevated at 6.9% in October while measures of core inflation remain around 5%. However, 3 month rates of change in core inflation have decreased which is an early indicator that price pressures may be losing some momentum. Having said that, inflation remains too high and short-term inflation expectations are still above target.   The BoC reiterated that “We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.”

Markets are of the belief the BoC is approaching the end of its rate-hiking cycle, with latest expectations suggesting little if any change throughout next year.

The BoC will make the first scheduled 2023 rate announcement on January 25.

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