Here's why experts think the Bank of Canada will hold the key interest rate
The Bank of Canada’s interest rate announcement is set for Wednesday, October 25 and it’s expected the central bank will hold the rate at 5%.
The expected decision comes after the BoC held the target benchmark interest rate at 5% in September.
According to Finder Canada, a personal finance comparison website, when the BoC decides to hold the rate, it means that it is waiting to see how economic factors are unfolding in the country and around the world.
“Another reason is that the BoC is on target — which means the current inflation rate is between 1% and 3%,” added Finder.
Several Canadian experts have also weighed in on why the BoC is expected to keep the rate steady and shared their thoughts with Finder.
The common opinion amongst most experts is that the economy is showing signs of a slowdown.
Murshed Chowdery, an associate professor at the University of New Brunswick, says that the recent slowdown in GDP growth is one of the reasons why the interest rate is expected to stay at 5%.
“Moreover there is no sign that the US feds plan to increase rates in November, which supports the BoC in holding the policy rate in Canada,” he added.
Avery Shenfeld, managing director and chief economist at CIBC Capital Markets, noted that because the economy is slowing, inflation has “come down sufficiently to warrant a continued pause in rate hikes.”
According to the Consumer Price Index for September 2023, the inflation rate dipped to 3.8%, down from 4% in August, which it said was a “broad-based” deceleration. Canada’s slowing inflation rate is due to lower prices on some travel-related services, durable goods, and grocery items, noted the report.
Nikola Gradojevic, professor of finance at the University of Guelph, noted that the September 3.8% inflation rate is “still far from the Bank of Canada’s target of 2% — making another hike a possibility.”
He also highlighted how the BoC’s decision to raise interest rates over the past year has “severely eroded Canadians’ purchasing power” and has made it difficult for many to pay off their bills and debts.
Leger’s State of the Economy Report published last week highlighted that Canadians are not confident in the country’s current economic outlet.
The report found that 66% of Canadians say their confidence in the national economy is “poor” or “very poor.”
About one-quarter (24%) of Canadians say inflation remains the most important issue for them, followed by household affordability (17%).
Canadians are also showing growing concern about their current household financial situation, as 39% say their household finances are either “poor” or “very poor.” This is a four percentage point increase from January 2023.
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