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The Bank of Canada left its key interest rate steady at 5 per cent for the fifth consecutive time since July 2023. The BoC's next rate decision is April 10.

What is the Bank of Canada's key interest rate right now?

The Bank of Canada's key interest rate is 5 per cent.

When is the Bank of Canada's next interest rate announcement?

The next interest rate announcement is April 10, 2024.

What’s happening with inflation in Canada?

Inflation is a generalized increase in consumer prices that erodes the purchasing power of money. It’s measured by looking at the Consumer Price Index (CPI), which captures price changes across a broad range of goods and services. The Bank of Canada’s raison d’être is keeping inflation low and stable, and it targets a 2-per-cent annual increase in the CPI.

Over the past three years, Canada – like many countries around the world – has experienced high inflation for the first time in decades. The annual rate of CPI inflation started rising in the spring of 2021 and reached a peak of 8.1 per cent in June 2022. Inflation has fallen considerably over the past 18 months, falling to 2.9 per cent in January, back within the bank’s 1 per cent to 3 per cent target range.

The drivers of CPI inflation have changed over time. Goods prices took off in 2021 when a surge in demand for manufactured products ran into various supply problems tied to the COVID-19 pandemic. Further supply shocks, including Russia’s invasion of Ukraine, pushed up global food and energy prices. Over time, domestic sources of inflation have become increasingly important and services inflation has outstripped goods inflation.

Today, the cost of shelter is the single biggest driver of inflation. This includes mortgage interest costs, which have been pushed higher by the Bank of Canada’s own interest rate hikes, as well as rents. Shelter inflation is being driven in large part by a combination of high demand, due to rapid population growth, and a shortage of housing supply, due to structural impediments to home building.

What’s the Bank of Canada doing about inflation?

The Bank of Canada uses interest rates to speed up and slow down the economy in an effort to control inflation. Higher interest rates make it more expensive for individuals and businesses to borrow money and service their debts. This reduces demand for goods and services, hopefully slowing the pace of price increases.

The central bank raised interest rates 10 times between March, 2022 and July, 2023, bringing its benchmark rate to 5 per cent from 0.25 per cent in one of the most aggressive monetary policy tightening campaigns on record. It has held the policy rate steady at 5 per cent over the past five rate decisions.

Bank of Canada officials say it’s still too early to begin talking about lowering interest rates. However, Bay Street analysts and investors expect the bank to start cutting rates in the first half of 2024, with most betting it will happen at the bank’s rate announcement in April or June.

How do the Bank of Canada rate hikes affect average Canadians?

Most Canadians experience interest rates through mortgages and various forms of consumer debt, including credit cards, personal loans and auto loans. The interest rate on both variable-rate and fixed-rate mortgages has risen dramatically over the past two years, making it harder for new buyers to get into the housing market and increasing monthly expenses for existing homeowners when they renew their mortgages.

Higher interest rates also impact the economy as a whole. Canadian economic growth has essentially stalled since the middle of 2023, as consumers have cut spending and businesses have pulled back on investment. Companies have slowed hiring and the rate of unemployment is on the rise.

So far the Canadian economy has avoided an outright recession. But the Bank of Canada expects economic activity to remain weak through the first half of 2024, before picking up in the second half of the year and into 2025.

What to know about the Bank of Canada

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