Bank of Canada Increases Rate by 0.50% - October 26th

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 5.45% to 5.95%. 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 $462,500. After the increase, the qualifying amount for every $100,000 of income is now approximately $440,500 assuming no debt and good credit.

After this increase, a large portion of Canadians in a static variable rate mortgage that started in mid-2021 will hit the trigger rate resulting in a higher mortgage payment. This includes my mortgage as well :(

Inflation continues to remain high around the world. This reflects the strength of the global recovery from the pandemic, supply disruptions, and increased commodity prices due to the war between Russia and Ukraine. The strength of the US dollar has been adding to inflationary pressures, and global inflation is only expected to come down as economies slow and supply disruptions ease.

Canada's economy remains in excess demand and labour markets are tight. Because the economy does not have the ability to supply, there is more pressure on inflation. The price of services has risen sharply due to the full reopening of the economy and strong demand.

Housing activity has decreased significantly, as well as spending by households and businesses. Economic growth is expected to stall through to the first half of 2023.

In the last 3 months, CPI inflation has declined from 8.1% to 6.9%, primarily due to a fall in gas prices. The Bank expects CPI inflation to ease as the higher interest rates help rebalance demand and supply. It is expected to decrease to around 3% by the end of 2023 and return to the 2% target by the end of 2024.

Given increased inflation and inflation expectations, as well as ongoing demand in the economy, the interest rates will need to rise further. The next Bank of Canada announcement will be on December 7, 2022. I am expecting another increase of 0.25% - 0.50%.

If you'd like to learn more about this recent announcement or would like to know how this affects you, please reach out to us and we'd be happy to help!