To no one's surprise — except maybe Prime Minister Trudeau — the Bank of Canada hiked its key interest rate a quarter of a point Wednesday in a bid to hold the line on inflation..At 5%, the prime rate is the highest in more than two decades, as the bank continues a policy of “quantitative tightening.”.It was the tenth increase in 16 months..“This is not the news that any Canadian wanted to receive this morning,” Trudeau said at the NATO summit in Vilnius, Lithuania, stating what has been a common cry among Canadians for months..Opposition leader Pierre Poilievre immediately ripped into the Liberal government’s spending policies during the pandemic as the root cause of the rate hike..He said first-time home buyers can expect to pay $500 more in monthly payments for the same mortgage as they were a year ago. It now takes 67% of income to service a traditional mortgage..“This is all thanks to Justin Trudeau’s inflationary and wasteful spending. The cost-of-living crisis will push more struggling Canadians over the edge,” he said in a statement. .“The Auditor General yesterday confirmed what Conservatives have been warning about since 2020 – wasteful spending due to lack of controls led to at least $32 billion in overpayments and suspicious payments. Scotiabank has estimated that 1.25%, nearly 30%, of these punishing hikes are directly a result of COVID spending.“.For his part, the prime minister pointed to grocery rebates, carbon tax payments and his party’s housing benefits as ways the government is helping Canadians fight the affordability crisis..“We will continue to be there for Canadians through these difficult times,” he said at a press conference..The good news is inflation eased to 3.4%, the lowest in more than a year..In a statement, the bank said it projects core inflation — which strips out gas and groceries — to hold steady around 3% for next year, returning to a target of 2% by 2025. That’s down from a peak of 8.1% last summer..But it came with a warning that inflationary pressures persist, particularly in the housing market, and warned future rate hikes might be forthcoming. .“Global inflation is easing, with lower energy prices and a decline in goods price inflation. However, robust demand and tight labour markets are causing persistent inflationary pressures in services,” it said. . Interest rate hikes July 2023Interest rates are the highest in 22 years. .“Global financial conditions have tightened, with bond yields up in North America and Europe as major central banks signal further interest rate increases may be needed to combat inflation.”.Much of its decision was based on economic factors abroad..Economic growth has been stronger than expected, especially in the United States, where consumer and business spending has been surprisingly resilient. Consequently the Federal Reserve has hiked its own rate to 5.25%..After a surge in early 2023, China’s economic growth is softening, with slowing exports and ongoing weakness in its property sector..Growth in the Euro Zone is effectively stalled: while the service sector continues to grow, manufacturing is contracting..As higher interest rates continue to work their way through the economy, the bank expects economic growth to slow, averaging around 1% through the second half of this year and the first half of next year. This implies real GDP growth of 1.8% in 2023 and 1.2% in 2024, it said. .The economy will move into modest excess supply early next year before growth picks up to 2.4% in 2025..“In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the 2% inflation target. The bank remains resolute in its commitment to restoring price stability for Canadians,” it said..For consumers, the immediate impact will be to variable rate mortgage rates, along with higher credit card rates and installment loans for things such as cars..The next scheduled rate announcement is Sept. 6. The bank will also publish its next full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report on Oct. 25.
To no one's surprise — except maybe Prime Minister Trudeau — the Bank of Canada hiked its key interest rate a quarter of a point Wednesday in a bid to hold the line on inflation..At 5%, the prime rate is the highest in more than two decades, as the bank continues a policy of “quantitative tightening.”.It was the tenth increase in 16 months..“This is not the news that any Canadian wanted to receive this morning,” Trudeau said at the NATO summit in Vilnius, Lithuania, stating what has been a common cry among Canadians for months..Opposition leader Pierre Poilievre immediately ripped into the Liberal government’s spending policies during the pandemic as the root cause of the rate hike..He said first-time home buyers can expect to pay $500 more in monthly payments for the same mortgage as they were a year ago. It now takes 67% of income to service a traditional mortgage..“This is all thanks to Justin Trudeau’s inflationary and wasteful spending. The cost-of-living crisis will push more struggling Canadians over the edge,” he said in a statement. .“The Auditor General yesterday confirmed what Conservatives have been warning about since 2020 – wasteful spending due to lack of controls led to at least $32 billion in overpayments and suspicious payments. Scotiabank has estimated that 1.25%, nearly 30%, of these punishing hikes are directly a result of COVID spending.“.For his part, the prime minister pointed to grocery rebates, carbon tax payments and his party’s housing benefits as ways the government is helping Canadians fight the affordability crisis..“We will continue to be there for Canadians through these difficult times,” he said at a press conference..The good news is inflation eased to 3.4%, the lowest in more than a year..In a statement, the bank said it projects core inflation — which strips out gas and groceries — to hold steady around 3% for next year, returning to a target of 2% by 2025. That’s down from a peak of 8.1% last summer..But it came with a warning that inflationary pressures persist, particularly in the housing market, and warned future rate hikes might be forthcoming. .“Global inflation is easing, with lower energy prices and a decline in goods price inflation. However, robust demand and tight labour markets are causing persistent inflationary pressures in services,” it said. . Interest rate hikes July 2023Interest rates are the highest in 22 years. .“Global financial conditions have tightened, with bond yields up in North America and Europe as major central banks signal further interest rate increases may be needed to combat inflation.”.Much of its decision was based on economic factors abroad..Economic growth has been stronger than expected, especially in the United States, where consumer and business spending has been surprisingly resilient. Consequently the Federal Reserve has hiked its own rate to 5.25%..After a surge in early 2023, China’s economic growth is softening, with slowing exports and ongoing weakness in its property sector..Growth in the Euro Zone is effectively stalled: while the service sector continues to grow, manufacturing is contracting..As higher interest rates continue to work their way through the economy, the bank expects economic growth to slow, averaging around 1% through the second half of this year and the first half of next year. This implies real GDP growth of 1.8% in 2023 and 1.2% in 2024, it said. .The economy will move into modest excess supply early next year before growth picks up to 2.4% in 2025..“In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the 2% inflation target. The bank remains resolute in its commitment to restoring price stability for Canadians,” it said..For consumers, the immediate impact will be to variable rate mortgage rates, along with higher credit card rates and installment loans for things such as cars..The next scheduled rate announcement is Sept. 6. The bank will also publish its next full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report on Oct. 25.
