The Bank of Canada increased the overnight rate today to 5% despite the decline in the inflation rate to 3.4% as of May 2023 because of lower energy prices. Food and shelter inflation remains high.

In a recent speech, Deputy Governor Paul Beaudry stated: "We know this tightening cycle has not been easy for many Canadians. But the alternative—not controlling inflation—would be far worse, particularly for people living on low or fixed incomes." He pointed out that continued strong demand for both goods and services, coupled with a tight job market and rising wages all highlight persistent inflation pressures in the Canadian economy.

With inflation approaching the target rate of 2%, most Canadian economists believe the key interest rate will remain at 5.0% for the duration of 2023, even though the Bank of Canada left the door open to more tightening. The next official inflation announcement is scheduled for July 18, 2023.

Looking ahead:

The Bank of Canada would be poised to reduce overnight interest rates to spur the general economy back to health, provided inflation is close to its target range of 2% (expected in mid to late 2024). This will have a dramatic effect on real estate market activity due to pent-up buyer demand, falling interest rates, which would improve affordability, massive immigration in Canada increasing demand for housing and a severe undersupply of housing stock.

The next Bank of Canada announcement is September 6, 2023.