
According to Statistics Canada, the inflation rate in Canada fell to 2.9% in January 2024, which is a significant decrease from the inflation rate of 3.4% in December of 2023.
The Bank of Canada determines the interest rate which currently sits at 5% as of February of 2024 by analyzing the inflation rate in Canada.
If the inflation rate is high, the Bank of Canada increases the interest rate in order to curb spending and demand and therefore it reduces the prices of goods and services.
If the inflation rate is low, the Bank of Canada decreases the interest rate in order to boost spending, which therefore increases the prices of goods and services.
This is a very important and delicate balancing act performed by central banks around the world in order to control and manage inflation rates in their respective countries.
So now that the inflation rate in Canada is coming down significantly from 2023, what will the Bank of Canada do about interest rates in the near future?
Central bankers are some of the most cautious and conservative professionals in the world and therefore no economists expect the Bank of Canada to change the current 5% interest rate.
The interest rate experts and observers expect the Bank of Canada will wait until at least the summer of 2024 before deciding on making any changes to the current interest rate of 5%.
As such these interest rates that dictate the interest rates that commercial banks can borrow money from the central bank, which in turn affect the interest rates that these banks charge to their business and personal customers, are not expected to change anytime soon.
However as a business owner, you can expect the interest rate will be reduced at some point in the second half of 2024. So now may be the time to begin to plan accordingly.
In a nutshell, this is good news for business owners as loan interest rates at current high interest rates are a significant expense and burden on many small businesses in Canada. Future rate cuts will be a welcome relief for business owners, as they would be for individuals with personal debt.
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