Is the Bank of Canada Going To Announce Another Interest Rate Hike?

With increasing inflation, a new stage is set for an interest rate hike by the Bank of Canada. The annual inflation rate is slightly lower than the previous year but it exceeded the September forecast. The annual inflation was 7% and the September forecast was around 6.8%, but the update revealed that the current inflation is 6.9%. Hence, it supports the idea of another interest rate hike by the Bank of Canada.

All three core inflation metrics of the Bank of Canada, which the bank uses as a benchmark to detect underlying inflation, remained constant in September with their combined average matching August’s upwardly revised 5.3%.

On October 26, the central bank will make its next highly anticipated decision and will reveal its quarterly predictions. Following the release of the inflation figures, money markets are expecting a change of 75 basis points, with the policy rate now expected to peak between 4.25% and 4.50%.

This year, the Bank of Canada has already increased its benchmark interest rate five times, the most recent increase occurred in September 2022. To combat inflation, the central bank stated on September 7 that it was raising the rate to 3.25%.

Canadians are concerned about the sixth interest rate hike and fear the cost of rent to become even more unaffordable than it already is now. With increased mortgage rates, the condition will become more critical for tenants and more people will be seen choosing to buy homes to lock in mortgage while the rates are still affordable. Experts and Economists have been seen warning the public about the impending recession and tough economic times ahead for Canada.

The finance minister, Chrystia Freeland said “Mortgage payments will rise, the business will no longer be booming, and our unemployment rate will no longer be at its record low.”

OECD (Organization for Economic Co-operation and Development) report

As per the OECD report, the Bank of Canada may hike the interest rate to 4.5% by the year 2023. The OECD has cautioned that such a significant increase is required to further manage uncontrolled inflation. This includes limiting economic demand to reduce the rising labour costs caused by the severe labour shortage. The OECD expects Canada’s real GDP growth to slow from 3.4% to 1.5% in 2023, below the global average of 2.2%. However, Canada’s economy will grow faster than the United States, growing by 1.5% in 2022 and 0.5% in 2023. People looking for houses for sale  may see some ups and downs in the property cost.

Source: OECD Interim Economic Outlook 112 database

Under the scenario of high-interest rates, the unemployment rate would increase from its all-time low of 4.9% in June 2022 to as high as 7% in early 2023. Naturally, this will result in higher unemployment and slower pay-scale growth, which will make owning a home more challenging. Additionally, rising rates will raise building prices due to higher finance expenses, and rising labour and material costs.

According to CMHC , by the middle of 2023, the housing market will be in a slump, with average home prices falling by 3% to 5% and home sales falling by 29% to 34% from the middle of 2022.

How higher interest rate will impact you

• The cost of borrowing, the profitability of investments, and interest rates on savings can all be impacted by higher interest rates. Here are some of the points to remembe
• If you have a mortgage with a variable rate, you might notice the change within a few days or weeks. Your monthly payment will not be implemented as much but most of the payment will contribute to the interest
• Interest rates on savings will increase as in GICs (Guaranteed Investment Certificates). Earlier, rates given for savings accounts and investments were also low during the low-interest rates period
• The cost of goods and products may fall as people will start spending less money on groceries
• The real estate market will be less crowded. As home loans were easier to manage due to lower mortgage interest rates, eager home buyers flooded the market. Due to the increased demand, sellers raised their asking prices, making it more challenging for buyers to find affordable home