You're a sneaky one, BoC...but not sneaky enough...

No Surprises Today

So I made a post on Instagram yesterday with my predictions for today (here). Pretty much everyone across the board was expecting The Bank of Canada (BoC) and Tiff Macklem to hold rates steady and keep up the tough talk. Which is exactly what we got. But what I was looking for today was the language that was used in addition to the content of the Monetary Policy Report (MPR) that would give us a little more insight as to where the BoC thinks Canada's economy is headed. And there are some interesting pieces that are worth a closer look.

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Side bar - if you don't follow me on Instagram - I post short updates more frequently there as I don't want to blow up your inboxes with every little bit of news. But if you find these newsletters helpful and informative - throw me a follow!

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Key Takeways from the MPR

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If there was a theme for this rate announcement and MPR by the BoC - it would be: "We're pretty sure we've done enough...but our last mistakes still haunt us so we'll leave the 'rate-hike' door open until were 100% certain." 

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The reason I say this is that BoC lowered their forecasts for GDP and total output for the Canadian economy. They're also projecting that we are entering a period of excess supply. The impact of lower growth, lower output, and supply exceeding demand should be inherently deflationary. This is what we want and what will bring inflation into target range more quickly. Yet somehow, the BoC's inflation numbers were revised upwards for the next 18 months. How?!?!

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There are likely two reasons for this:

1. There have been too many unexpected events over the last 18 months and they can't afford to be surprised again
2. It's purposeful. By keeping inflation predictions high, it makes the threat of potential future rate hikes very real and keeps upward pressure on fixed interest rates

The market has been very invested and reactive to what the BoC says and does. Higher-for-longer rate expectations push up bond yields which is part of what's driving up fixed interest rates. And for a central banker who's trying to kill inflation - this is a pretty desirable outcome which only helps serve their purpose.

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Barring any very significant surprises in the global economy, it's very likely that the Bank of Canada is done hiking rates. And it's probably more likely that we are underestimating how quickly rates will need to ease off to a more neutral stance.

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What to do

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As always, I like to try and give some tangible, real-world advice for prospective home buyers as well as current mortgage holders.

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1. If you're looking to buy: get yourself pre-approved and be prepared...but be patient. It's very likely that the housing market will slow until we see the prospect of rate cuts becoming more real. But when things turn, and they will, you will have competition. Preparation is key.
2. If you're in the middle of your mortgage term: and this really only applies to variable rate mortgage holders (if you're fixed, you're good): as rough as it is right now, fixed rates are higher than your variable and likely to begin easing off soon. Stay the course if possible. But if you're stressed and need help - reach out. There are potential solutions.
3. If you're coming up for renewal: call me. If nothing else, I can help you negotiate a better rate with your Financial Institution. But know what your options are. In most cases, we're able to get significantly better rates on existing mortgages

If you, or anyone you know, falls into these camps and needs advice, please reach out. I would love to help you or your referral out. 

All the best out there!

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