Bank of Canada Leaves its Overnight Target Rate Unchanged at 5.00%
2023-10-25 | 10:45:03
This morning the Bank of Canada announced they would NOT be changing the overnight lending rate. It will remain at 5%; this means the prime lending rate is 7.20%.
This is good news for anyone with a variable rate mortgage or home equity line of credit.
I find that many clients have the same question, what is the overnight lending rate and what goes into the Bank of Canada’s decision. Here is some additional information on the why and what.
The Bank of Canada is responsible for setting the overnight lending rate, which is the interest rate at which banks lend money to each other overnight. This rate is a key tool for controlling inflation and maintaining economic stability in Canada. Any changes to this rate can have significant impacts on the economy, so it is important to understand what goes into the Bank of Canada's decision to change it.
The Bank of Canada's decision-making process is based on a variety of factors, including inflation, economic growth, and global events. The Bank uses a variety of indicators to monitor these factors, including consumer price index (CPI) inflation, gross domestic product (GDP) growth, and employment rates.
When inflation is higher than the Bank's target rate of 2%, it may increase the overnight lending rate to encourage people to save more and spend less, which can help to bring inflation back down. On the opposite side, when inflation is lower than the target rate, the Bank may lower the overnight lending rate to encourage people to borrow and spend more, which can help to stimulate economic growth.
The Bank also considers global events when making its decision. For example, if there is a major recession or financial crisis in another country, this could have ripple effects on the Canadian economy. In such cases, the Bank may decide to lower the overnight lending rate to help stimulate economic growth and prevent a recession in Canada.
In addition to these factors, the Bank also consults with a wide range of stakeholders, including government officials, business leaders, and economists, when making its decision. The Bank's decision is ultimately based on its assessment of the overall state of the Canadian economy and its outlook for the future.
Overall, the Bank of Canada's decision to change the overnight lending rate is a complex process that involves careful consideration of a wide range of economic factors and global events. While the Bank's decision can have significant impacts on the economy, it is ultimately made to maintain economic stability and promote long-term economic growth.
With the announcement this morning, the Bank of Canada said, “Clearer signs that monetary policy is moderating spending and relieving price pressures” they continued to say it remains concerned by the slow progress towards price stability and notes inflationary risks have increased, they continue to say they are, “prepared to raise the policy further if needed.” For now, we will take the hold on this announcement and fingers crossed for the next one on December 6, 2023.
