[Business](/news/business) 10th rate hike by central bank since March 2022 The Bank of Canada raised its benchmark interest rate by 25 basis points on Wednesday, marking the first time since April 2001 that the figure hit five per cent.The move was expected by economists after Statistics Canada released its June labour force survey last week , which showed that Canada added 60,000 jobs last month — further contributing to an overheated economy.Following the announcement, experts diverged on whether Canadians could expect another increase after the summer.Trading in investments known as swaps — which bet on future central bank moves — imply there is a better than 75 per cent chance of another small hike at the bank’s next meeting on Sept.6.
“While the Bank of Canada didn’t shut the door to more monetary tightening, Canadians might finally be seeing some light at the end of the rate-hiking tunnel,” Desjardins economist Royce Mendes wrote in a note.Meanwhile, CIBC economist Andrew Grantham wrote that “a continued hawkish tone within today’s statement suggests that risks are skewed towards another hike after the summer.” Wednesday’s rate hike marks the 10th by the central bank since March 2022.It hit pause on those hikes in January for a few months to determine whether the economy had sufficiently cooled, then resumed its campaign in June.WATCH | ‘Monetary policy is working,’ says Bank of Canada governor Tiff Macklem “Global inflation is easing, with lower energy prices and a decline in goods price inflation.However, robust demand and tight labour markets are causing persistent inflationary pressures in services,” the bank wrote in its release.
Canada’s economy has been more resilient than expected, the bank noted in its monetary policy report.Its updated projections now suggest that it will take longer to hit its two per cent inflation target than previously thought.
“We’ve been clear about the indicators we are watching, and it’s clearly too early to be talking about interest rate cuts,” Bank of Canada governor Tiff Macklem said during a Wednesday mid-morning news conference.”We are certainly trying to balance the risks of over- and under-tightening and we’ll be taking it one meeting at a time,” he added.While the hikes are meant to curb consumer spending, the report noted that “excess demand” persists, including in the retail sector — and the country’s booming population contributes to job growth, spending and demand for housing.
Canada’s inflation rate slowed to 3.4 per cent in the year up to May, down from 8.1 per cent last summer as the central bank’s efforts to rein in the number paid off.
But rising food prices were still outpacing inflation — an ongoing trend since late 2021.’I’ve thought about selling’ With today’s rate hike, a typical mortgage holder can expect to pay more on their variable rate loan, starting tomorrow.A homeowner with a $500,000, 25-year variable rate loan at a rate of 5.8 per cent yesterday would have been paying $2,512 a month.After Wednesday’s hike, their rate is likely to jump to 6.05 per cent, which will bump their monthly payment up to $2,571 a month.That’s an increase of more than $700 a year.Exact numbers will depend on the specifics of the loan, but on average, mortgage analytics site RateHub.ca says mortgage holders can expect to pay $100 more per month on their mortgage after Wednesday’s hike.Leena Chandi, a single mother of three who purchased her Surrey, B.C., townhouse seven years ago, said she would lay down and cry if another hike were announced, as it was on Wednesday.Having started on a fixed mortgage, she switched to a new bank and took on a variable rate about a year-and-a-half ago — before the Bank of Canada began its quest to tame an overheated economy with a series of interest rate hikes.
“All of a sudden, boom.The first increase happened and I was like, ‘OK, well, whatever, you know, that’s fine, I can handle it,” Chandi told CBC News.”And then the second increase happened and then the third increase happened, and then the fourth and then the fifth, and now my mortgage payment is doubled.” Chandi said her biweekly payments increased from $800 to $1,300 during that period.”I’ve thought about selling.
I really have because …my townhouse is now probably worth three times, almost 2½ times what I paid for it.But where am I gonna go?” Mortgage rates driving inflation “Certainly, housing is very sensitive to interest rates, so when interest rates move it affects house prices, but one of the fundamental things that’s holding up house pricing in Canada is there’s just more demand than there is supply,” said Carolyn Rogers, senior deputy Bank of Canada governor, during the Wednesday news conference.”We target inflation.
We don’t target house prices and we don’t target any one sector or one item within the [consumer price index] basket.” WATCH | ‘We don’t target house prices’: Clément Bonnal, a Quebec City resident who bought his house in 2021, said his mortgage payments have increased by almost $700 per month.He said that a rate hike by the Bank of Canada is “nonsense” to him, as rising mortgage costs are now driving inflation, having climbed by 30 per cent in Statistics Canada data from June.Bonnals questioned why the bank would continue to raise interest rates when inflation is close to their target range — and given that the impact of rate hikes can sometimes take more than a year to appear in the economy.
“If they continue to increase the rates, it’s like a fireman that puts the fire in the forest,” Bonnal told CBC News.With files from Pete Evans.
