The Bank of Canada (BoC) held its policy interest rate at 5 per cent on Wednesday, a highly-anticipated move from policymakers who continue to battle elevated inflation.
“We need to give higher interest rates more time to do their work,” Governor Tiff Macklem said at the press conference.
The Consumer Price Index (CPI), which measures inflation by the change of price of a basket of goods, remains elevated at 2.9 per cent. CPI inflation reached a historic high in June 2022 at 8.1 per cent.
The BoC raised the policy interest rate—or overnight rate—10 times between March 2022 and July 2023, according to BoC data. It’s called the overnight rate because financial institutions are able to borrow from each other for a day, and this is the rate the BoC wants them to charge for these loans.
“We’ve come a long way in our fight against high inflation. Monetary policy is working, inflation is coming down. But it’s too early to loosen the restrictive policy that has gotten us this far,” Macklem said in opening remarks.
Policymakers increase interest rates to combat inflation, as higher interest rates reduce demand for goods and services. Interest rates are the “cost of borrowing,” so higher interest rates mean fewer people are likely to take out loans and embark on large purchases. As demand decreases, prices are pushed down.
The biggest contributor to inflation in Canada is high shelter prices, according to Macklem. Although the housing market has slowed slightly in the face of higher interest rates, there’s potential the market could speed up, Macklem added.
“If you look at our January projection, we expect some rebound in housing,” Macklem said.
In Kingston, rent has remained elevated. High interest rates disincentivize the purchase of homes, as taking out a mortgage is more expensive. So, there’s more demand for rentals—and higher prices.
Rent prices for properties in Kingston have increased by two per cent over the past year, according to data from Zumper.
In the past year, one-bedroom and two-bedroom accommodations have increased by 11 and 10 per cent, respectively. But four-bedroom accommodations have seen 19 per cent price decrease, bringing the average down.
The median rent for all housing units in Kingston $2,035—four per cent higher than the national average.
Tags
Bank of Canada, Finance, housing, Inflation, interest rates, Policy
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