Bank of Canada hikes interest rates again – but hits ‘pause’ on someone else
The Bank of Canada has raised its benchmark interest rate again to 4.5%.
The move was widely expected by economists as the bank tries to curb record high inflation in deposits.
It is the eighth time in less than a year that the bank has raised its benchmark rate, a move that will make borrowing more expensive.
But at a quarter of a percentage point, it’s also the smallest increase since March, and thus a sign that the Bank may be done with hiking rates for a while.
The bank said as much in a press conference after the announcement, with Governor Tiff McCallum using the word “pause” to describe the bank’s monetary policy strategy at the time.
“With today’s modest hike, we expect to hold off on rate hikes while we assess the impact of the fairly tight monetary policy already initiated,” he said. “Obviously, this is a conditional break — it’s contingent on broader economic developments in our … view.
“If we need to do more to bring inflation down to the two percent target, we will.”
If the central bank is done hiking rates, the moment is not too soon for people like Mizba Mehtab. He and his wife bought a house in Whitby, Ont. In 2021 They were renters who previously paid only $2000 a month, but they got a variable rate loan to buy more space for their children.
Their original mortgage payment was about $3,000 a month — a bit steep, but manageable within their family budget.
Since then, however, their monthly payments have risen to more than $5,000, a level at which Mehtab says he spends every penny he can get his hands on. “I’ve heard the term ghar gharib before, but this is the first time I’m experiencing it,” he told CBC News in an interview.
look Economists say rate hikes are hurting workers:
He questions why the central bank keeps raising rates so aggressively, hurting homeowners like him while doing nothing to lower the cost of living.
“I don’t believe it when they say it will control inflation, it has made my bank richer,” he said.
Mehtab says the bank’s policies so far have only succeeded in hurting families like his, while doing nothing to address other increases in the cost of living.
“I’d rather pay $10 for a loaf of bread and have a house and a job than be unemployed and homeless but the bread comes back to $2,” he said.
The hikes so far have managed to bring inflation down from about four times normal levels to just three times, but the central bank says it is confident rates will drop much sooner. People expect from
The Bank of Canada expects headline inflation to ease to three per cent by the end of this year, and then two per cent next year, according to the bank’s latest projections in a monetary policy report released on Wednesday.
A change in policy direction
They are not the only ones who think so. Stephen Brown, an economist at Capital Economics, believes Canada’s economy is slowing faster, and inflation may return to the one-to-three percent range sooner than many think.
“We continue to believe that the Bank is underestimating how quickly core prices will decline, with our forecasts for headline inflation of 2 percent for the second half of this year,” he said. It indicates a shortage.” “The bottom line is that we believe today’s hike will be the last and we see the Bank likely to start cutting interest rates again as early as the third quarter.”
After absorbing eight rate hikes in a year, the prospect of a rate cut would be welcome news for borrowers like Mehtab, but McCullum was repeatedly asked at a press conference after the rate announcement whether Is reduction on the table or not? And he pushed the idea back every time.
“Let’s keep in mind that inflation is still over six percent,” he said. “Inflation is coming down but we have to be humble, there are many risks … so it is too early to talk about cuts.”
Mortgage broker Samantha Brooks agrees that rock bottom interest rate days may be good.
“I don’t think these rates will necessarily go down at all,” he told CBC News in an interview. “One and two percent fixed rates — I think we’re done with them.”