Intelligent Investment

The Bank of Canada’s “March Break”

Canada Monthly Mortgage Commentary

February 27, 2023 2 Minute Read

The stage is set for the Bank of Canada to proceed with its conditional pause with interest rate hikes in March. Despite the labour market exceeding expectations and continued robust jobs growth with the unemployment rate holding near record lows, inflation looks fickle. Part of the latest drop recorded in inflation was affected by base effects in headline inflation, which had actually risen month-over-month in January. Altogether, this current economic situation does not meet the Bank of Canada’s criteria for an “accumulation of evidence” required to trigger another rate increase. As such, expectations remain high for the central bank to hold its policy interest rate steady next month and the rest of 2023.

In the U.S., the Federal Reserve appears committed to a couple more interest rate hikes before its pause later around mid-2023. Market expectations now call for a peak U.S. interest rate of 5.30% which would equate to roughly 75 bps higher than where the Bank of Canada is currently looking to hold. A major reason for the Bank of Canada’s earlier pause is sensitivity of highly indebted Canadians to higher interest rates. Combined with the typical 18 to 24 month lag for the full effects of monetary policy to be felt in the economy, the Bank of Canada felt it prudent to pause earlier and avoid potentially overtightening.

With greater interest rate clarity as we progress in 2023, it is expected to lift commercial real estate investment activity later in the year. Together with the stronger than expected investment activity recorded in Q4 2022, which hit $58.5 billion for the year and just shy of 2021’s record pace, momentum is building for investment volumes in 2023. Announced mergers and acquisitions alongside known major deals set to close this year, should provide the catalyst for more real estate transactions to come.

Economic Highlights:

  • Preliminary estimates show GDP growth in Canada slowed to 1.6% in Q4 2022 from the 2.9% recorded in Q3.
  • Inflation fell to its lowest level in 11 months, coming in at 5.9% for January 2023.
  • Employment rose by 150,000 jobs in January 2023 with the unemployment rate holding near its record low at 5.0%.


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