On Wednesday, the Bank of Canada made the decision to increase its benchmark interest rate to 4.75%. Since signaling in January that it would conditionally halt its aggressive campaign of rate hikes to wait and see if it had sufficiently reduced inflation, Canada’s central bank has not increased its trend-setting interest rate. Since then, the figures have revealed an unexpectedly strong Canadian economy that has expanded faster than anticipated. The inflation rate unexpectedly increased last month after falling for nine consecutive months.
The Highest since 2001
With its most recent rate increase from 4.5 to 4.75 percent, the bank has reached its highest level since 2001. Even while investors and economists believed there was a remote chance the bank would hike the rate immediately, the decision nonetheless surprised them because they expected the bank to do so later this year.
However, analysts are already placing bigger wagers on the prospect of additional rate increases. Swap trading has completely factored in at least one more increase by year’s end and is even open to the potential of one increase beyond that, to 5.25 percent or beyond. The move by the central bank will increase the cost of living for people with variable rate mortgages, many of whom have seen their payments soar this year.
Bank of Canada’s shock rate hike hits 22-year high
Aftereffects of the Decision
Within hours of the central bank’s decision, all of Canada’s major banks moved to raise their prime lending rates to 6.95 percent in order to keep pace with the bank. The bank’s decision, according to economist and Atkinson Fellow of the Future of Workers Armine Yalnizyan, will harm vulnerable Canadians while doing nothing to address underlying inflation and may potentially make it worse.
In an interview with CBC News on Wednesday, Yalnizyan noted that the cost of mortgage interest, which rose by 28% in the previous year, was the single biggest factor in the increase in the inflation rate last month. Who determines the price of mortgage interest? The bank, she remarked.
