Intelligent Investment

Calming Waters

Canada Monthly Mortgage Commentary

April 27, 2023 2 Minute Read

Amid a stronger than expected economic background and the fallout of the U.S. banking sector turmoil, the economy’s fluid nature caused the Bank of Canada to hold interest rates steady and maintain its pause on hikes for the time being. While early GDP indicators suggest a strong rebound in economic activity for Q1 2023, the central bank maintains its expectations that monetary policy changes act with a lag and that growth will weaken through the remainder of the year. However, despite the expected slowdown, it would appear the Bank of Canada’s base-case scenario continues to be a soft landing for the Canadian economy. According to the central bank’s latest projections, annual GDP growth is forecast to remain positive at 1.4% for 2023. The outlook for inflation in Canada also remains largely the same and is expected to fall to 3% by mid-2023 before gradually declining to the 2% target by the end of 2024.

While inflation in Canada has cooled over recent months, it is the next stage of bringing inflation all the way down to target that concerns the Bank of Canada. In fact, despite financial markets speculating that the Bank of Canada will cut interest rates later this year, it would appear the central bank might in fact be closer to raising interest rates further than cutting them. Minutes from the Bank of Canada’s deliberations this month revealed that officials were actively debating higher interest rates but needed more evidence, stressing the conditional nature of the central bank’s pause. 

One benefit that has emerged from interest rates holding steady so far in 2023 has been less volatility in asset pricing of commercial real estate in Canada. Cap rates continued to trend upwards in Q1 2023, however, the pace of increases had slowed considerably according to CBRE’s latest Canadian Cap Rate & Investment Insights report. Combined with bond yields softening towards the end of the quarter, real estate spreads firmed, easing some of the upwards pressure on cap rates. As investors begin to be able to price capital more efficiently, market activity should rebound later in the year.

Economic Highlights:

  • Preliminary estimates show a 0.3% month-over-month GDP increase in February 2023 following a 0.5% gain in January.
  • Employment rose by 34,700 jobs in March 2023 with the unemployment rate continuing to hold steady at 5.0%.
  • Inflation eased further to 4.3% in March 2023, its lowest level since August 2021.


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