Bank of Canada Holds Interest Rate Steady, Anticipates Rate Cut in Spring

On January 24, 2024, the Bank of Canada announced its decision to maintain its overnight lending rate at 5%, signaling a potentially imminent rate cut in the coming months. Economists at TD Economics predict that the first rate cut since the early days of the COVID-19 pandemic may occur as early as Spring 2024.

The Bank of Canada’s interest rate decisions have been closely watched by many Canadians, especially those looking to enter the housing market or renew their mortgages. These rate adjustments can directly impact the borrowing costs of loans, including mortgages, offered by Canadian banks.

In addition to holding the interest rate steady, TD Economics released a report stating that it expects the central bank to start reducing its overnight rate as early as April or June.

A separate report by TD Economics, titled [Report Title], noted that while core inflation, which excludes food and energy prices, is cooling, housing-related inflation remains high. Despite this, TD Economics believes that the Bank of Canada will opt for rate cuts starting this Spring in order to mitigate the risks of a deepening recession if interest rates remain elevated for an extended period.

“The Bank of Canada is expected to start cutting its policy rate this Spring, despite inflation remaining above the target, and shelter inflation likely still running hot,” said TD Economics’ SVP and Chief Economist Beata Caranci, along with James Orlando, Director & Senior Economist, in their report.

Caranci and Orlando also emphasized that this move presents a challenge for the Bank of Canada in managing household inflation expectations, which are already elevated and may outweigh housing cost pressures. They pointed out that there are signs of the inflation cooling process extending to a wider range of products.