March 6^th Interest rate decision

March 6^th is coming soon and a lot of people, I am sure, are anxious to hear The Bank of Canada’s decision. Let us see what has happened so far since the last decision on January 26^th. First of all, the January inflation level came in a lot lower than expected at 2.9%. Economists were expecting 3.3%. While the inflation level is higher than the target 2%, for the first time in a long time, the level of inflation is now below 3%. The main number The Bank of Canada follows is the core rate of inflation, which takes out volatile changes in prices. This number did come down but is still above 3%. The main issues affecting our level of rates are the price of oil and the US economy.

The reason why the inflation level dropped to 2.9% is because the price of oil dropped. The current conflicts in the Ukraine, and Israel will have an effect on the price of oil. Also, the new conflict between Ghana and Venezuela will not help because this new tension between the two countries is about oil. If the Canadian dollar remains at its current level, this might have a problem with inflation since the price of oil is priced in US dollars.

In contrast to Canada, the US economy is doing very well. The inflation level, according to US department of Labor, came in at 3.1%. While this is down from December, it was higher than expectations. Below is a summary of the US economy sourced from Reuters, February 22, 2024.

• “Weekly jobless claims fall 12,000 to 201,000”
• “Continuing claims decline 27,000 to 1.862 million”
• “Existing home sales increase 3.1% in January”
• “Median house price rises 5.1% to $379,100 from year ago”

If the US economy continues to be stronger than expected, The Federal Reserve may increase rates. This may put pressure on the Canadian Dollar, which will make imported goods more expensive. This may cause inflationary pressures. What does this mean for interest rates and Real estate? We all know that the level of inflation, affects the interest rates, which in turn affects mortgages rates – the cost of borrowing money. Believe it or not, current events, the economy has an affect on Real estate since housing is part of the overall economy.  I think The Bank of Canada will keep rates the same. Tiff Macklem has suggested that he must be convinced that inflation is under control before he starts lowering rates. That being said, there is a consensus that rates will start to drop in the second half of the year.