A majority of economic and financial folk, including 12 of 17 members of an economic panel assembled by Finders.com, were betting the Bank of Canada would raise its overnight rate by .25% on Jan. 25..Cash in those chips..The bank raised the rate by .25%, taking it to 4.5%, the highest since 2007..In a statement, the bank said, ”In Canada, recent economic growth has been stronger than expected and the economy remains in excess demand. Labour markets are still tight, the unemployment rate is near historic lows and businesses are reporting ongoing difficulty finding workers.” .“However, there is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Consumption growth has moderated from the first half of 2022 and housing market activity has declined substantially.”.The bank forecasts a slowdown in consumer spending and business development which it says should result in supply catching up to demand..Canada’s economy grew by 3.6% in 2022, slightly stronger than was projected in October, said the bank. .“Growth is expected to stall through the middle of 2023, picking up later in the year,” it said. “The bank expects GDP growth of about 1% in 2023 and about 2% in 2024, little changed from the October outlook.”.Looking at inflation, which dropped to 6.3% in December, the bank offered an optimistic outlook.."Despite this progress, Canadians are still feeling the hardship of high inflation in their essential household expenses, with persistent price increases for food and shelter. Short-term inflation expectations remain elevated. Year-over-year measures of core inflation are still around 5%, but three-month measures of core inflation have come down, suggesting that core inflation has peaked.”.“Inflation is projected to come down significantly this year. Lower energy prices, improvements in global supply conditions, and the effects of higher interest rates on demand are expected to bring CPI inflation down to around 3% in the middle of this year and back to the 2% target in 2024.”.In the strongest language it has used regarding putting the brakes on rate increases, the bank said, “If economic developments evolve broadly in line with the Monetary Policy Report’s outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”.With this caveat, “Governing Council is prepared to increase the policy rate further if needed to return inflation to the 2% target and remains resolute in its commitment to restoring price stability for Canadians.".The increase will result in borrowing costs also increasing for thousands of Canadian mortgage holders and would-be buyers, with monthly mortgage payments for borrowers on a variable rate having already spiked dramatically last year..Currently the mortgage stress test puts the minimum qualifying rate for an uninsured mortgage at the greater of the contract rate plus 2%, or 5.25%..“It’s going to be an interesting spring,” says Victor Tran, a RATESDOTCA mortgage expert, adding with the increase, “we may see a slower housing market during the traditional spring housing rush than we are used to, as buyers wait for the market to bottom out before purchasing..Tan says for every .25% increase, a homeowner with a variable-rate mortgage can expect to pay about $14 more a month per $100,000 of mortgage..For example, a homeowner with a $500,000 mortgage at a rate of 5.25% will see their rate rise to 5.5% and payments increase $74 a month to $3,070. .“If this same homeowner had taken out their mortgage before March 2022, they would have seen a total increase to their mortgage payments of $1,129 a month since the bank began hiking rates,” says Tran, who also predicts the spring market may see a surge of investors forced to sell condos, possibly double the usual number..BMO senior economist, Robert Kavcic, says, “Mortgage rates should now be at or near their peak, if the Bank of Canada continues as expected. If the bank stops after this .25% hike, the upward march of variable rates will end.”.The next scheduled date for announcing the overnight rate target is March 8, 2023.
