What Newcomers Can Gain From the Bank of Canada’s Steady Interest Rates?

Recently, on April 12, the Bank of Canada (BoC) declared that interest rates will remain at 4.5%. Since January of this year, interest rates have remained at 4.5% after being raised many times in the second half of 2022. Although this rate is still high, the fact that interest rates have not increased and the rate of inflation has decreased suggests that Canada’s economy may be beginning to stabilise. With a constant interest rate, newcomers to Canada are able to plan their spending for major purchases and receive a predictable return on any guaranteed investment certificates (GICs).

According to Macklem, the benefits of the higher interest rate would not be immediately apparent because they normally take between 18 and 24 months after measures are put in place. This is part of the reason why Canadians’ prices are still so high. The ability of the average Canadian to buy a home or a car is significantly impacted by interest rates.

However, the high interest rate means mortgage rates will remain high for some time and may be a cause for concern even for those with a locked-in mortgage rate that is up for renegotiation. Although the Canadian federal government recently amended an act that prohibited non-Canadians and permanent residents from buying a home in Canada, this is still true today. For the time being, a stable interest rate implies that monthly mortgage payments will remain the same amount, enabling both newcomers and Canadians to plan their budgets and future expenses.

The Labour Market in Canada Has Remained Tight

Macklem told reporters that although employers are beginning to find it easier to recruit workers due to strong population growth, the labour market has remained tight, with unemployment at 5%. He attributes a large portion of the expansion to businesses that make use of the Temporary Foreign Worker Program, which aids in bringing in more skilled people and lowering the number of open positions.

The Immigration Levels Plan 2023–2025, published by Canada in November, set the highest-ever targets for the admission of new permanent residents, at 500,000 per year by 2025. This will lessen the strain on industries with high demand for trained labour.

In addition to this, Macklem discussed the advantages of immigration for lowering inflation and said that more immigration would rebalance supply and demand. According to the Boc, the hiring of more immigrants is anticipated to aid in better controlling high wages, which is essential because wages must slow to bring inflation under control.

High Interest Rates

It is believed that COVID-19 pandemic measures are to blame for the current high interest rates. At the time, the BoC cut lending rates to ease the burden on Canadians who were struggling financially while many businesses were closed. Spending growth sparked a rise in demand for goods and services as the economy recovered strongly over time. To keep up, businesses had to work harder and raise prices, which accelerated inflation. Raising interest rates reduces demand by reducing spending. This suggests that firms can reduce their pricing, which should lessen the cost of living.