The Bank of Canada has held its key interest rate steady at five per cent, citing the impact of upcoming mortgage renewals on the economy as a key factor in its decision.
Bank of Canada Governor Tiff Macklem, alongside Senior Deputy Governor Carolyn Rogers, appeared before a Senate committee on Wednesday to discuss the central bank’s most recent interest rate decision and monetary policy report.
Macklem explained that the Bank of Canada is still seeing the effects of previous rate hikes filter through the economy, including in the form of mortgage renewals. “One of the important reasons why we held our policy rate of five per cent is that we know that those renewals are coming. So we know that there’s more to come from what we’ve already done,” he said.
The governor emphasized that as people renew their mortgages at higher interest rates, households will likely feel the financial squeeze more directly, which could lead to a softer economy. “That’s why we have a forecast for weaker growth,” he added.
Despite the potential economic slowdown, Macklem stressed that the Bank of Canada is actively working to avoid a recession. “We want to avoid a recession,” he stated in French during the committee meeting.
In its most recent monetary policy report, the Bank of Canada lowered its economic growth forecast and raised its inflation forecast for the short term. However, it still expects inflation to return to its target of two per cent by 2025.
Recent data from Statistics Canada indicates that the economy may be on the brink of a mild technical recession, as higher interest rates continue to impact consumer spending.
By maintaining the policy rate at five per cent, the Bank of Canada aims to strike a balance between combating inflation and supporting economic growth, all while navigating the complexities of the upcoming wave of mortgage renewals.
