Bank of Canada raises policy rate 25 basis points, continues quantitative tightening.

The Bank of Canada today increased its target for the overnight rate to 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is also continuing its policy of quantitative tightening.

Global inflation is easing, with lower energy prices and a decline in goods price inflation. However, robust demand and tight labour markets are causing persistent inflationary pressures in services. Economic growth has been stronger than expected, especially in the United States, where consumer and business spending has been surprisingly resilient. After a surge in early 2023, China’s economic growth is softening, with slowing exports and ongoing weakness in its property sector. Growth in the euro area is effectively stalled: while the service sector continues to grow, manufacturing is contracting. Global financial conditions have tightened, with bond yields up in North America and Europe as major central banks signal further interest rate increases may be needed to combat inflation.

The Bank’s July Monetary Policy Report (MPR) projects the global economy will grow by around 2.8% this year and 2.4% in 2024, followed by 2.7% growth in 2025.

Canada’s economy has been stronger than expected, with more momentum in demand. Consumption growth has been surprisingly strong at 5.8% in the first quarter. While the Bank expects consumer spending to slow in response to the cumulative increase in interest rates, recent retail trade and other data suggest more persistent excess demand in the economy. In addition, the housing market has seen some pickup. New construction and real estate listings are lagging demand, which is adding pressure to prices. In the labour market, there are signs of more availability of workers, but conditions remain tight, and wage growth has been around 4-5%. Strong population growth from immigration is adding both demand and supply to the economy: newcomers are helping to ease the shortage of workers while also boosting consumer spending and adding to demand for housing.

As higher interest rates continue to work their way through the economy, the Bank expects economic growth to slow, averaging around 1% through the second half of this year and the first half of next year. This implies real GDP growth of 1.8% in 2023 and 1.2% in 2024. The economy will move into modest excess supply early next year before growth picks up to 2.4% in 2025.

Inflation in Canada eased to 3.4% in May, a substantial and welcome drop from its peak of 8.1% last summer. While CPI inflation has come down largely as expected so far this year, the downward momentum has come more from lower energy prices, and less from easing underlying inflation. With the large price increases of last year out of the annual data, there will be less near-term downward momentum in CPI inflation. Moreover, with three-month rates of core inflation running around 3½-4% since last September, underlying price pressures appear to be more persistent than anticipated. This is reinforced by the Bank’s business surveys, which find businesses are still increasing their prices more frequently than normal.

In the July MPR projection, CPI inflation is forecast to hover around 3% for the next year before gradually declining to 2% in the middle of 2025. This is a slower return to target than was forecast in the January and April projections. Governing Council remains concerned that progress towards the 2% target could stall, jeopardizing the return to price stability.

In light of the accumulation of evidence that excess demand and elevated core inflation are both proving more persistent, and taking into account its revised outlook for economic activity and inflation, Governing Council decided to increase the policy interest rate to 5%. Quantitative tightening is complementing the restrictive stance of monetary policy and normalizing the Bank’s balance sheet. Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the 2% inflation target. The Bank remains resolute in its commitment to restoring price stability for Canadians.



Burnaby home prices still rising

Home prices continue to rise month-over-month in Metro Vancouver, and Burnaby is no exception.

Detached home and apartment prices have risen across the city, according to a new report by the Real Estate Board of Greater Vancouver (REBGV).

“Despite elevated borrowing costs, there continues to be too little resale inventory available relative to the pool of buyers in Metro Vancouver,” said Andrew Lis, REBGV’s director of economics and data analytics, in a news release. “This is the fundamental reason we continue to see prices increase month over month across all segments.”

In Burnaby, the estimated price of a typical property (called the benchmark price), ranged from about $1.03 million in north Burnaby to $1.19 million in east Burnaby. South Burnaby saw a benchmark price of $1.12 million last month across all property types.

North Burnaby saw a 0.9 per cent increase from May, east Burnaby a 2.7 per cent increase, and South Burnaby a 1 per cent increase from the previous month.

But in the last year, prices have dropped a little. North Burnaby saw its residential benchmark drop 3.7 per cent from a year ago – but it’s still up 26.8 per cent from three years ago.

And townhome prices in east Burnaby fell slightly since May, with a benchmark of $863,500 (down 1.3 per cent, but up 27.1 per cent from three years ago).

The REBGV is calling on the provincial government to adjust the threshold for the first-time homebuyers’ exemption from the property transfer tax.

The REBGV noted the benchmark price for apartments in the region is now $767,000 – while the current threshold for the first-time buyers’ tax exemption is $525,000.

“This is a simple policy adjustment that could help more first-time buyers afford a home right now,” Lis said.

In Burnaby last month, there were 65 detached homes sold (median selling price: $2 million), 67 attached homes (median price: $990,000), and 258 apartments sold (median price: $738,000), according to the REBGV data.

Benchmark prices for apartments

  • Burnaby East: $798,600 (up 1.2 per cent this month)

  • Burnaby North: $753,800 (up 0.1 per cent this month)

  • Burnaby South: $812,100 (up 0.8 per cent this month)

Benchmark prices for townhomes

  • Burnaby East: $863,500 (down 1.3 per cent this month)

  • Burnaby North: $903,500 (up 0.1 per cent this month)

  • Burnaby South: $997,800 (up 0.6 per cent this month)

Benchmark prices for detached homes

  • Burnaby East: $1.91 million (up 4.8 per cent this month)

  • Burnaby North: $2.04 million (up 2.9 per cent this month)

  • Burnaby South: $2.2 million (up 1.7 per cent this month)


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