The Bank of Canada announced on Sep 7, 2022 that they have increased its key interest rate by 0.75%. The prime rate will be increased from 4.70% to 5.45%. Therefore, for those who have a variable rate credit product, payments may increase by approximately $40.00 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 $500,000. After the increase, the qualifying amount for every $100,000 of income is now approximately $462,500 assuming no debt and good credit.
Covid, ongoing supply disruptions, and the war in Ukraine continue to slow growth and increase prices. Inflation remains high around the world and central banks are continuing to tighten monetary policy. However, the economic activity and oil prices in the US have moderated.
Due to a drop in gas prices, Canada's inflation has eased in July to 7.6% from 8.1%. Inflation has increased elsewhere, particularly in services, meaning further price pressures. Short-term inflation still remains high.
The increase in mortgage rates has resulted in a quieter housing market.
The Bank continues to expect the economy to moderate towards the second half of 2022, as global demand weakens and a tighter monetary policy in Canada begins to bring demand more in line with supply.
However, due to inflation predictions, the Governing Council believes that interest rates will need to continue to rise further. Quantitative tightening continues to complement increases in the policy rate. The Bank of Canada is continuing to assess how much higher interest rates need to go up by in order to return inflation to the 2% target.
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 us and we'd be glad to help!