Bank of Canada increases key interest rate by 0.50% - December 7, 2022
This morning, the Bank of Canada announced that they have increased its key interest rate by 0.50%. The prime rate will be increased from 5.95% to 6.45%. Therefore, for those who have a variable rate credit product, payments may increase by approximately $28.50 per month for every $100,000 loan.
The stress test qualifying rate has also increased. For every $100,000 of income, Canadians would have been able to qualify for approximately $440,500. After the increase, the qualifying amount for every $100,000 of income is now approximately $420,000 assuming no debt and good credit.
Inflation continues to remain high around the world. Global economic growth is slowing, and the gradual easing of supply chain bottlenecks continue. The progress could be affected though by upcoming geopolitical events.
Canada's economy was found to be stronger in the 3rd quarter than expected and it continues to operate in excess demand. Commodity exports have been strong, however, there is growing evidence that monetary policy is restraining domestic demand. Housing market activity continues to decline, and the Bank's prediction is that growth will stall through the end of 2022 into the first half of 2023.
CPI inflation remained at 6.9% in October, and prices of goods and services are showing large increases. However, the 3-month rate of change in core inflation has come down, indicating that price pressures may be losing momentum. Inflation currently still remains high though, and short-term inflation expectations are still elevated.
The Governing Council will continue to monitor whether interest rates need to increase further to bring supply and demand back into balance and to return inflation to target. They will assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation is responding. Quantitative tightening continues to complement increases in the policy rate, and the Bank remains committed to achieving the 2% inflation target to restore price stability for Canadians.
The next Bank of Canada announcement will be on January 25, 2023.
If you'd like to learn more about this recent announcement or would like to know how this affects you, please feel free to reach out to us and we'd be glad to help!
Source: Bank of Canada