Bank of Canada Holds Rates Steady, But For How Long?

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The Bank of Canada (BoC) hit the brakes on interest rate hikes as expected, holding the key overnight rate at 5% after raising it aggressively over the past year to combat surging inflation.

Walking An Inflation Tightrope?

However, experts say Governor Tiff Macklem and other officials face a tricky balancing act in acknowledging growth headwinds while also keeping pressure on still-high inflation and inflation expectations.

"The BoC wants to signal rates have peaked without stimulating premature bets on cuts next year," said CIBC Capital Markets economist Royce Mendes.

October inflation data showed prices rising 6.9% annually, down from a peak of over 8% but still well above the central bank's 1-3% target range. Meanwhile, GDP has stalled in Q3, and the jobless rate has climbed quickly back above 5%, indicating an economic slowdown is underway.

Mortgage Risks Loom

With household debt at record levels, many economists point to upcoming mortgage renewals as a major vulnerability if the BoC miscalculates. Over 80% of mortgages in Canada are short-term 5-year loans that will need refinancing at sharply higher rates in 2023-2024.?

"The BoC will try to chart a neutral path between overtightening and risking a household debt crisis versus loosening too fast and re-igniting inflation," said National Bank Financial's Matthieu Arseneau.

Navigating Choppy Waters

Ultimately, officials face complex tradeoffs between taming inflation, financial stability risks, and supporting growth as the economy slows. Their messaging aims to acknowledge these crosscurrents while retaining flexibility on future moves.

Every Crisis Brings Opportunities

As single-family homes become less affordable and homeowners face financial stress due to the wave of upcoming mortgage refinancing, the demand for rental properties, especially in the multifamily sector, is expected to rise. Investing in multifamily rental apartments could be a strategic move in this evolving market. To learn how you can benefit from this trend, contact me at (604) 613-1693 or [email protected] to learn more.

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Credits: Bank of Canada's continued hawkish talk faces economic test

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