Bank of Canada Holds Interest Rates Steady, Bringing Stability for Newcomers and their Future Finances

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The Bank of Canada (BoC) announced on April 12 that it would maintain its interest rate at 4.5 percent. Since this rate has remained unchanged since January of this year, the Canadian economy may be stabilising. Governor of the Bank of Canada Tiff Macklem says the current monetary policy must remain restrictive in order to reduce the rate of inflation. The benefits of the higher interest rate will not be immediately apparent, as they typically manifest between 18 and 24 months after the implementation of a measure.

Excellent news for newcomers

The absence of an increase in interest rates and the falling rate of inflation are positive developments for immigrants to Canada. They can establish budgets for large purchases and receive a consistent rate of return on any guaranteed investment certificates (GICs) if the interest rate is stable. A stable interest rate also ensures that monthly mortgage payments will remain unchanged, allowing both newcomers and Canadians to budget and plan for the future.

Influence of Interest Rates on Expensive Acquisitions

The interest rate significantly affects the capacity of the average Canadian to make large purchases, such as a house or a car. Even for those with a locked-in mortgage rate that is up for renegotiation, the high interest rate means mortgage rates will remain elevated for some time, which may be cause for concern. The federal government of Canada recently amended a law prohibiting non-Canadians and permanent residents from purchasing a property in Canada.

Limited Workforce and Immigration

The labour market, according to Macklem, has remained constrained, with unemployment at 5%. As a result of robust population growth, however, it is becoming simpler for businesses to find labour. The Canadian economy relies on immigration to fill labour force vacancies and maintain essential services as the population ages. By 2025, the Immigration Levels Plan 2023-2025 establishes the highest-ever targets for new permanent resident admissions, at 500,000 per year. This will help alleviate the strain to find skilled workers in industries such as healthcare, construction, and professional and scientific services, where demand is high.

Measures implemented during the COVID-19 pandemic are responsible for the current high interest rates. Increased spending led to an increase in demand for goods and services, requiring businesses to work harder and raise prices to keep up, thereby contributing to the high inflation rate. Increasing interest rates decreases expenditure and demand. This implies that businesses can reduce their prices, and that the cost of living should decrease. The Bank of Canada forecasts that inflation will decline to approximately 3% by the middle of this year and reach the target rate of 2% by the end of 2024.

source: ©David Kawai/Bloomberg via Getty Images ; Cicnews
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