June 07, 2023

Bank of Canada – Will They Continue to Raise Rates?

All Canadian mortgage holders have been holding our collective breaths during each of the Bank of Canada’s interest rate announcements. The BOC has made it clear today that we are not out of the woods yet. With a 0.25% increase to its overnight lending rate, we will see the Prime Rate move up to 6.95%. The last time that we have seen rates at this level was in 2007.

This rate hike today affects variable or adjustable rate mortgages, as well as secured or unsecured lines of credit. 

Will the BOC continue to raise rates? This is a toss-up and there is no clear answer. The main reason for the BOC’s decision today is the surprising strength and resilience in the Canadian housing market. The most recent data shows that the housing market is gaining strength despite the rise in rates. In the BOC’s eyes, if the most rate-vulnerable sector is still growing, more rate hikes are needed. Last month showed a slight uptick in overall inflation and there are hints that the 2nd quarter of Canada’s economy may also be in excess. That being said, many Economists do not believe that the way back to 2% inflation will be a steady drop – some upticks were expected. 

Canadian households are much more interest rate sensitive in comparison to our neighbors in the US. With our shorter term mortgages, households with renewals coming up in the next 2-3 years will most likely see increased rates. With this rate increase today, the Canadian Government 5 year bond yields have increased sharply – we are expecting all lenders to issue increases to their fixed rate offerings in the next day or so.

IMPORTANT DATES COMING UP:

June 09 – Canadian Employment Data

June 13 – US CPI Data for May 2023

June 14 – US Federal Rate Announcement

June 27 – Canadian CPI Data for May 2023

Click below to read the most recent announcement straight from the Bank of Canada:

June 07 2023 Rate Announcement

I will leave you with an excerpt from the BOC Announcement:

“The Bank continues to expect CPI inflation to ease to around 3% in the summer…However, with three-month measures of core inflation running in the 3½-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.”

Only time will tell, but Canadians are more than ready for inflation and higher rates to ease.