Interest rates are holding steady. Here’s what that means for inflation, housing

The Bank of Canada did not move its key interest rate on Wednesday, but there are other factors at play that could affect housing prices and inflation on the cost of goods.

The Bank of Canada did not hike its benchmark interest rate on Wednesday despite pressure to cool surging inflation and a red-hot housing market. The central bank’s officials did signal change was on the horizon though and offered hints at where consumer and housing prices could head in the months to come.

Governor Tiff Macklem said in prepared remarks to reporters that the central bank’s “emergency policy settings” tied to the COVID-19 pandemic are done as the country’s top economic officials lifted their commitment that held Canada’s interest rates at rock-bottom levels.

Though some economists expected the Bank of Canada to act with its first policy rate announcement of the year, Macklem said an expectation of reduced spending in the first quarter of the year tied to the Omicron COVID-19 wave was among the leading factors holding back an interest rate hike.

He said interest rates are now on a “rising path,” however, with increases expected over multiple steps in upcoming announcements, the next of which comes on March 2.

Meanwhile, the annual rate of inflation sits at a 30-year high and Canadian housing prices are expected to climb, with no immediate rate hikes to discourage higher lending.

Here’s what to expect on home prices and the impact at the grocery store from the Bank of Canada’s most recent decision to hold interest rates.

The Bank of Canada signalled in a monetary policy report released alongside its interest rate decision Wednesday that prices will continue to rise at a rapid clip in the first six months of the year.

The central bank expects inflation will remain around five per cent for the first half of 2022 before falling back down to three per cent by the end of the year and back towards the target rate of two per cent by 2024.