Market Update

January 25, 2023: Bank of Canada Increased Policy Interest Rate by 25 Basis Points, Continues Quantitative Tightening

The Bank of Canada Raised its Target for the Overnight Rate to 4½%, with the Bank Rate at 4¾% and the Deposit Rate at 4½%. The Bank is also Keeping its Policy of Quantitative Tightening

In its first decision of 2023, the central bank raised its policy rate by 25 basis points to 4.5 percent. The key rate for the Bank of Canada is the highest since 2007.

The global economy remains in a state of high inflation with a broad base. Many countries are experiencing lower inflation as a result of lower energy prices and improved global supply chains. Despite slowing economies, the U.S. and European economies have proven more resilient than expected at the time of the Bank’s October Monetary Policy Report. As a result of China’s abrupt lifting of COVID-19 restrictions, the growth forecast for the country has been revised upward. As a result of China’s abrupt lifting of COVID-19 restrictions, the growth forecast for the country has been revised upward. A significant source of uncertainty remains Russia’s war on Ukraine. While financial conditions remain restrictive, they have eased since October, and the Canadian dollar has been relatively stable against the US dollar.

According to the Bank, the global economy will grow by 3½% in 2022, slow to about 2% in 2023, and 2½% in 2024. This projection is slightly higher than October’s.

Recent economic growth in Canada has been stronger than expected, and the economy remains in surplus. There is still a tight labour market: unemployment is near historic lows, and businesses report difficulty finding employees. There is, however, increasing evidence that restrictive monetary policy is causing a slowdown in economic activity, particularly in household spending. There has been a significant decline in housing market activity since the first half of 2022, and consumption growth has moderated since the first half of 2022. Consumer spending and business investment are expected to slow as the effects of interest rate increases work their way through the economy. As a result of weaker foreign demand, exports are likely to suffer. Supply will be able to catch up with demand as a result of this overall slowdown in activity.

The Bank forecasts that Canada’s economy will grow by 3.6% in 2022, slightly stronger than was projected in October. By the middle of 2023, growth is expected to stagnate, before picking up later in the year. GDP growth is expected to be about 1% in 2023 and about 2% in 2024, little changed from October.

Due to lower gasoline prices and, more recently, moderating durable goods prices, inflation declined from 8.1% in June to 6.3% in December. Even with this progress, Canadians continue to face high inflation in essential household expenses, such as food and shelter. Inflation expectations remain elevated in the short term. Although year-over-year measures of core inflation are still around 5%, 3-month measures have fallen, suggesting that core inflation has peaked.

It is expected that inflation will decrease significantly this year. It is expected that lower energy prices, improved global supply conditions, and higher interest rates in 2024 will bring CPI inflation back to 2%.

The Governing Council decided to increase the policy interest rate by 25 basis points due to persistent excess demand pushing prices upward. Quantitative tightening by the Bank complements the policy rate’s restrictive stance. While assessing the impact of the cumulative interest rate increases, the Governing Council expects to hold the policy rate at its current level if economic developments follow the MPR outlook. The Governing Council is prepared to increase the policy rate further if necessary to restore inflation to the 2% target, and remains committed to restoring price stability for Canadians.

Briefing note

March 8, 2023, is the next scheduled date for announcing the overnight rate target. On April 12, 2023, the Bank will publish its next full economic and inflation outlook, including risks to the projection.

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Federal Foreign Buyer’s Ban: What to Know

A Ban on Foreign Ownership of Residential Property Became Law on January 1, 2023, Prohibiting Anyone Who Is Not a Canadian Citizen or Permanent Resident from Purchasing Residential Property for a Period of Two Years

Source: REBGV

A ban on foreign ownership of residential property will become law on January 1, 2023, prohibiting anyone who is not a Canadian citizen or permanent resident from purchasing residential property for a period of two years.

The Liberal Party announced the ownership ban in the 2021 election and rolled it out in the federal Budget 2022: a plan to grow our economy and make life more affordable. The government’s goals were clearly stated in the budget:

“We will do everything we can to make the market fairer for Canadians. We will prevent foreign buyers from parking their money in Canada by buying up homes. We will make sure that houses are being used as homes, rather than as commodities to be traded,” – Budget 2022.

To this end, the government tabled Bill C-19, Budget Implementation Act, 2022, No. 1. It received Royal Assent on June 23, 2022. Section 235 of the bill is the Prohibition on the Purchase of Residential Property by Non-Canadians Act.

Who can’t buy residential property?

The act defines a non-Canadian as:

an individual who is neither a Canadian citizen nor a person registered as an Indian under the Indian Act nor a permanent resident;
a corporation that is incorporated otherwise than under the laws of Canada or a province;
a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect and that is controlled by a person referred to in paragraph (a) or (b); and
a prescribed person or entity.

Exceptions

Include:

A temporary resident within the meaning of the Immigration and Refugee Protection Act; or
A non-Canadian who buys residential property with a Canadian spouse or common-law partner if the spouse or common-law partner is a Canadian citizen or permanent resident, or person registered as an Indian under the Indian Act.

Residential property

Includes any real property or immovable that is:

a detached house or similar building, containing not more than three dwelling units;
a semi-detached house, rowhouse unit, residential condominium unit or other similar premises, vacant land, where the land has been zoned for residential use or mixed use and is within a Census Metropolitan Area (having a population of at least 100,000) or Census Agglomeration (having a population of at least 10,000); or
any prescribed real property or immovable.

Penalties

Non-Canadians found guilty of contravening the act are subject to a fine of not more than $10,000. If the federal government orders the sale of the property, the non-Canadian buyer won’t receive more than the amount paid for the property.

Property Purchased by a Non-Canadian Before January 1, 2023

The ban doesn’t apply if the agreement of purchase and sale of the residential property involving a non-Canadian is dated before January 1, 2023.

Regulations

Future regulations will provide details on transactions deemed prohibited purchases, including whether exceptions apply to conditional contracts entered into before January 1, 2023, that become unconditional on or after January 1, 2023.

If you have any questions, please call Geoff Jarman at 604-313-7280 or fill out the contact form.

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