On April 12, the Bank of Canada (BoC) announced that it would keep interest rates stable at 4.5%.
Interest rates have remained at 4.5% since January of this year, after several increases during the second half of 2022.
This rate is still high, but the absence of an increase in interest rates and the decline in the inflation rate indicate that Canada’s economy may be beginning to stabilize. A constant interest rate means newcomers to Canada can budget for large purchases and earn a constant rate of return on any Guaranteed Investment Certificate (GIC).
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Still, Bank of Canada Governor Tiff Macklem says that current monetary policy needs to remain tight to bring down the rate of inflation and that interest rates may still go higher. It is still too early to tell.
At a press conference to announce the update, Macklem said the benefits of the higher interest rate won’t be immediately obvious, as they typically come with a delay of 18 to 24 months after the measures are implemented. , which is a factor by which prices rise. It’s still just as high for Canadians.
The interest rate has a strong impact on the ability of the average Canadian to make large purchases, such as a house or a car.
Canada’s federal government recently amended a law that prohibited non-Canadians and permanent residents from buying a home in Canada, but the high interest rate means that mortgage rates will remain high for some time and may be a concern even for those with a blocked mortgage. in mortgage rate that is in renegotiation.
For now, a constant interest rate means that monthly mortgage payments will stay the same and allow newcomers and Canadians alike to budget and plan for the future.
Restricted labor market and immigration
Macklem told reporters the job market has remained tight, with unemployment at 5%, but companies are finding it easier to find labor due to strong population growth.
He attributes much of the growth to employers using the Temporary Foreign Worker ProgramThis helps attract additional skilled workers and reduces the number of job vacancies, which in turn eases pressure on companies struggling to meet demand.
Canada’s population is aging and the economy depends on immigration to fill gaps in the workforce, keep essential services running and benefit from your income tax contributions.
Last November, Canada launched the Immigration Levels Plan 2023-2025 containing the highest-ever targets for new permanent resident admissions at 500,000 per year by 2025. This will help ease the pressure to find qualified employees in high-demand sectors such as healthcare, construction, and professional and scientific services. .
Speaking about the inflation-reducing benefits of immigration, Macklem told reporters at a news conference last January that more immigration would rebalance supply and demand.
“The more we can do with supply, the less we have to do with demand. Hiring more immigrants is expected to help better regulate high wages, which the BoC says is imperative because wages will have to fall to control inflation.”
Bank of Canada interest rate rises
The current high interest rates date back to measures taken during the COVID-19 pandemic. At the time, the BoC cut interest rates to take some of the pressure off Canadians facing financial difficulties while many workplaces were closed.
As time passed and the economy rebounded strongly, increased spending led to increased demand for products and services. Businesses had to work harder and raise prices to keep up, which contributed to the high rate of inflation.
Rising interest rates curb spending and ease demand. This means that companies can lower their prices and the cost of living should go down.
Inflation peaked in June 2022 at 8.1% and has since dipped to 5.2% in February. The BoC predicts that inflation will fall to around 3% by the middle of this year and decline more gradually to the 2% target by the end of 2024.
reference: www.cicnews.com