The Bank of Canada keeps its key rate unchanged for the second time in a row – what does it mean for mortgage holders?

On Wednesday, the Bank of Canada kept its key lending rate unchanged for the second meeting in a row, noting that the latest data is increasing its confidence in slowing down inflation.

Governor Tiff Macklem held the overnight rate at 4.5%, which coincides with the forecasts of economists polled by Bloomberg. However, the BoC repeated that it’s ready to raise the rate again if necessary.

The central bank also upgraded its economic growth forecasts for 2023, which means higher chances of a soft landing. This may restrain market expectations for a rate cut, which according to swaps traders may happen this year.

The announcement shows that the Bank is comfortable waiting for more numbers before making any changes to its monetary policy. Macklem says tighter credit conditions (affected by the banking sector turmoil as well) are expected to restrain economic growth in the U.S. and Europe.

“The Bank of Canada’s plan is to wait for now, as patience is vital in getting inflation back to its target level without hurting the national economy,” – Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, noted. “In general, the Bank is on hold, although not in synch with market forecasts of upcoming rate cuts this year, as the BoC isn’t calling for a recession so far.”

While the central bank admitted that output was much stronger than expected in the first quarter, it still doesn’t expect this trend to continue. The economic growth will be “weak” for the rest of 2023, meaning the economy will have excess supply in the second half. According to the BoC, inflation will go back to near its target level by the end of the next year, although there are still certain risks to that.

However, the Bank believes consumer spending will be subdued in the second half of the year and in 2024 as the consequences of tighter monetary policy hit the economy harder than expected. The share of income eaten by interest payments will keep growing as homeowners renew their mortgages at higher interest rates.

The Bank’s decision to keep the rate at 4.5% for the second time in a row should bring more stability to the national mortgage market.

If you have a variable rate, you may relax for now, as the situation is going to be stable for some time. In case you feel the pressure, you may consider getting a short-term fixed rate for the rest of your term.

The BoC’s meeting announcement could raise interest in the real estate market, but home prices will hardly grow to the peak levels we saw in 2022.

Currently, many of those who are searching for stability will probably enter the market in another wave. In addition to it, more units are expected to enter the market this spring.