Fingers crossed! The chances are strong that tomorrow the Bank of Canada will maintain its key rate at 4.5%.
This is what many economists are rightly predicting after observing that the Bank of Canada’s credit-tightening policy is beginning to seriously slow inflation and thus stabilize prices, globally speaking of course.
As we know, there are exceptions, including food prices, which unfortunately continue to rise.
Note that we will not have stolen it since our central bank has raised its key rate eight times over the past 12 months. Barely a year ago, I would remind you that our key rate was at the floor, at 0.25%.
Quebec in difficulty
Here in Quebec, the dizzying rise in interest rates is hurting the economy.
In any case, the leading Desjardins index (IPD) suggests that economic difficulties will persist in Quebec in 2023.
The DPI is a composite index that captures changes in trends that may herald the onset of a slowdown, recession or recovery approximately six months in advance.
“The IPD remains sharply down, ie -1.8% in December, and several pitfalls persist for the economy,” indicates Hélène Bégin, senior economist with the Economic Studies department of Desjardins.
Among the persistent pitfalls, she cites the increase in interest costs of loans, the weakening of the residential sector, the low level of household confidence, the decrease in purchases of durable goods, the deterioration of the confidence of SME owners , as signs of a slowdown in global trade could lead to a decline in investment and exports.
Ms. Bégin even fears a deterioration in terms of employment in Quebec, which is saying something in this period of great labor shortage.
“Even if the labor market has held up well so far and the unemployment rate remains at its historic low of 3.9%, it should rise again soon,” she specifies. The more delicate financial situation of companies should limit hiring prospects. »
Regarding the housing market, the impact of the sharp rise in mortgage rates will continue to do damage as more owners are forced to renew their mortgages at rates significantly higher than their current mortgages.
Of course, the impact of rising mortgage rates has had the effect of slowing the property resale market considerably and, of course, driving prices down significantly from the April 2022 peak.
Which is in principle “good news” for future buyers. But they still have to have the means to pay the monthly mortgage payments!
In addition, the rise in rates has greatly dampened new construction and it is far from over.
Quebec’s economic difficulties are such that the risks of seeing Quebec enter a recession, according to Ms. Bégin, are still very present, despite the rebound in real GDP at the end of 2022.
Let’s hope the Bank of Canada monks give us some respite by leaving the key rate at the current level.