Bank of Canada Raises Key Interest Rate by 25 bps, with next announcement expected on March 8, 2023.
January 27, 2023
The Bank of Canada has increased its target for the overnight rate to 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%. The Bank is also continuing its policy of quantitative tightening as global inflation remains high and broad-based. Inflation is coming down in many countries, largely reflecting lower energy prices as well as improvements in global supply chains.
The Bank estimates the global economy grew by about 3½% in 2022, and will slow to about 2% in 2023 and 2½% in 2024. This projection is slightly higher than October’s. In Canada, recent economic growth has been stronger than expected and the economy remains in excess demand. Labour markets are still tight: the unemployment rate is near historic lows and businesses are reporting ongoing difficulty finding workers. However, there is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Consumption growth has moderated from the first half of 2022 and housing market activity has declined substantially.
Inflation has declined from 8.1% in June to 6.3% in December, reflecting lower gasoline prices and, more recently, moderating prices for durable goods. Despite this progress, Canadians are still feeling the hardship of high inflation in their essential household expenses, with persistent price increases for food and shelter. Short-term inflation expectations remain elevated. Year-over-year measures of core inflation are still around 5%, but 3-month measures of core inflation have come down, suggesting that core inflation has peaked. Inflation is projected to come down significantly this year. Lower energy prices, improvements in global supply conditions, and the effects of higher interest rates on demand are expected to bring CPI inflation down to around 3% in the middle of this year and back to the 2% target in 2024.
In the property appraisal industry, it is important to stay informed of interest rate changes and its effects on the economy and housing market. This will help real estate appraisers to make more accurate and informed valuations of properties. As the economy slows, it’s important to be aware of how this can affect property values, and how this can impact the property appraisal process. It’s also important to keep an eye on inflation and how it affects the prices of essential household expenses, as these factors can also affect property values. Keeping up to date with the latest economic trends can help real estate appraisers to provide more accurate and reliable property appraisals.
Cameron French
President, Able Evaluations Ltd.
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