Bank of Canada raises the key interest rate by half a percentage point, bringing it to 3.75%

The Bank of Canada has raised its policy rate to 3.75%, stating borrowing costs need to rise to bring inflation back to target of 2% from the current rate of 6.9%. “We actually need to see some cooling in the labour market,” Bank of Canada Governor Tiff Macklem said this month. “Right now, it’s overheated. That’s also generating domestic price pressures.” In theory, domestically, higher interest rates discourage spending on goods and services, which reduces demand for labour and lowers inflation. However, more than half of the inflation that Canadians experience is due to forces outside of Canada such as the Ukraine-Russian War and global supply chain problems. Economists are projecting a moderate recession for Canada’s economy in 2023 and we now believe this downturn will arrive as early as the first quarter of 2023. A recession is officially judged as two consecutive quarters of negative economic growth. During this period unemployment tends to rise quickly and retail sales fall sharply. 

In the housing market, home sales and prices are expected to continue to decline in 2022 and 2023 predominately in B.C. and Ontario due to rising interest rates reducing affordability and demand. In Atlantic Canada, Quebec and the Prairies sales activity will continue to decline but not prices due to affordability and tight inventories. In 2024, inflation should be closer to the Bank of Canada desired target rate of 2%, and the Bank of Canada will likely lower rates. Housing demand should rise due to lower interest rates and pent-up demand for housing. This improving demand backdrop will likely yield an increase in average home prices and sales activity.

The next rate-setting day is December 7th, 2022.

Now is the time to get in touch for a review of your mortgage strategy. It’s important to get advice and a professional assessment of your situation if you want to switch your mortgage for a new rate, need a new mortgage, are renewing, or looking to refinance for debt consolidation, renovations, or other large expenditures.

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