The Bank of Canada announced this morning that the key interest rate will be raised another 25 basis points. This morning’s announcement will be the fifth interest rate announcement of 2023, but the 10th rate hike since the start of the tightening in 2022, with three more scheduled for the rest of this year. The next announcement is September 6th.
Prime Rate is now at 7.20%, the highest it’s been in 22 years.
Last month’s announcement raised the key rate another 0.25%. These rate hikes are supposed to relieve inflation. Canada’s inflation rate rose to 8.1% in June, but Statistics Canada reports that consumer spending has remained high. The annual change in the Consumer Price Index measures inflation.
The BoC’s goal is to keep inflation around 2%, but their forecasters are currently predicting inflation will return to 2% closer to mid 2025. The Forecasters say that this is due to excess demand, higher than expected housing prices and higher than expected prices for tradable goods.
Experts weren’t sure if this rate hike would bring another rate hike or hold. Experts shared that if the BoC increased the rate by another 0.25%, we should see a decrease in prices in the housing market.
Over the past two years, prices of goods and services have risen rapidly, corrupting the dollar’s purchasing power and making life less affordable for Canadians. Raising the rates makes it more expensive for households and businesses to borrow money and service their debts. Higher rates will eventually reduce demand for goods and services, slowing the pace of price increases.
Interest rate changes often fully impact economic growth inflation 18 to 24 months after an announced change.
CIBC Senior economist Andrew Grantham seems to disagree with the interest rate hikes, calling recent hikes “unnecessary” and a “mistake.” Grantham said that current consumer spending is still lower than pre-pandemic levels, suggesting that much of the growth in consumer spending is levelling out to regular numbers since the pandemic lock down.
If you are concerned about increased mortgage payments or how this might affect you, please do not hesitate to reach out. We can analyze your current situation and assess your goals and needs for the upcoming years and find the best option for you. We have been able to help many clients switch from Variable to Fixed these past few months to save them from the increasing payments out of their control. If you are wondering how restructuring your mortgage can help free up cash flow or manage your debt, then let’s chat!
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Trish & The Primex Team