Bank of Canada interest rate

2022 - 5 - 30

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Image courtesy of "CBC.ca"

Bank of Canada all but certain to raise lending rates this week ... (CBC.ca)

There's a virtually unanimous view among economists that the Bank of Canada will raise its benchmark lending rate to 1.5 per cent on Wednesday.

The current inflation rate for necessities is two to three times higher than what the bank likes to see. But as those real lending rates inch higher, the bar for the stress test gets raised too. And even the relatively small rate hikes that have happened so far have many would-be buyers failing to meet the new, higher bar. The most obvious impact would be in the housing market. Canada's benchmark interest rate hasn't hit that level since the 2008 financial crisis. Officially, Canada's inflation rate sits at 6.8 per cent, its highest level in 30 years.

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Image courtesy of "Cult MTL"

The Bank of Canada is raising interest rates this week, but should ... (Cult MTL)

Market Makers have confirmed that the Bank of Canada will increase its key interest rate by 50 basis points to 1.5% to reduce inflation.

“The impact of rising interest rates will be felt by Canadians on their—Angus Reid Institute mortgages, whether they are on a variable rate or looking to renew their fixed rate mortgages. According to CBC, Market Makers have confirmed that the Bank of Canada will increase its key interest rate by 50 basis points to 1.5%, in order to keep inflation under control. While Canadians are most likely to want the Bank of Canada to keep interest rates unchanged (45%), they are twice as likely to want interest rates to be increased to reduce inflation (27%), rather than decreased to ensure that the housing and investment markets don’t fall (13%).

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Image courtesy of "Investment Executive"

Bank of Canada expected to jack up interest rates as inflation persists (Investment Executive)

Experts say robust growth and unemployment at multi-decade lows leave space for the slowdown targeted by the BoC.

“In fact, with the policy rate still low, something larger than a 50-basis-point increase could easily have been justified. Canada’s consumer price index rose 6.8% in April compared to a year earlier, Statistics Canada reported earlier this month. “These cost pressures will continue to fuel inflation, which will add further pressure for the Bank of Canada to continue raising interest rates at a super-sized pace in their attempt to bring inflation under control,” he said in a release Monday.

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Image courtesy of "Globalnews.ca"

Canadians may see a 0.5% interest rate hike this week thanks to ... (Globalnews.ca)

The rising cost of living will likely push the Bank of Canada towards a second consecutive interest rate hike of 50 basis points, economists predict.

If it does not use its primary policy tool to push back on inflation, expectations of perpetual price growth could seep into the minds of consumers and businesses. They don’t want to scare the economy too much,” she said. “If people believe that the Bank of Canada is going to be successful in reining in inflation in the future … it enables the Bank of Canada to be more effective at doing that job,” Orlando said. The last time it raised rates half a percentage point in back-to-back decisions was nearly 25 years ago, in December 1997 and January 1998. COVID-19 lockdowns in China contributing to global supply chain issues are among other factors. “The good news is that belief is still out there that this is going to be something that will eventually be reined in,” Orlando said.

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