The Bank of Canada’s aggressive one per cent rate increase on Wednesday caught many by surprise and will likely have a considerable financial impact for many Canadians, says one economist.
“It’s going to have an immediate, pretty dramatic effect on a lot of people’s borrowing costs,” Stephen Brown, senior Canada economist at Capital Economics, told CTV’s Your Morning on Thursday.
“The bank is telling us it is going to do whatever it takes to get inflation back down again.”
Most economists had expected an already-hefty 75 basis point move. However, the jump to 2.5 per cent from 1.5 per cent is the largest single increase by the central bank since 1998 and the fourth hike this year. Yet the bank has made it clear it’s not done.
Earlier polls suggested economists were expecting a 50 basis point increase in September. Brown is predicting a 75 basis point hike, followed by another quarter per cent in October, for a total of another one percentage point increase before the Bank of Canada holds.
Brown added the Bank of Canada’s “whatever it takes” warning includes risking a downturn in the economy.
There are already concerns that soaring interest rates could drive the country into a recession, but most economists have said the bank has few other options to quickly tame soaring inflation.
The annual inflation rate surged to 7.7 per cent in Canada in May, the highest it’s been since 1983 and far exceeding the Bank of Canada’s two per cent target. While the central bank is predicting inflation will peak at 8 per cent in the coming months, Capital Economics is forecasting a peak of 8.3 per cent.
Last week, Royal Bank of Canada predicted that the country was headed towards a moderate and short-lived recession.
Still, there are “encouraging signs” globally in regards to decreasing inflation, Brown said, with some commodity prices beginning to cool and global shipping rates falling sharply.
“We should see some goods prices start to ease up now in the coming months,” he said.
One sector seeing a significant impact from the rate hikes is the housing market. Average housing prices have already fallen dramatically since April and the Canadian Housing and Mortgage Corporation is expecting the market to decline 3.5 per cent overall, with some forecasters predicting a steeper plunge of up to 20 per cent.
Capital Economics is among the forecasters predicting a 20 per cent dive.
“[It’s] in part a reflection of just how incredible the gains were over the past year,” Brown said.
House price inflation at the moment is running around 25 to 30 per cent, depending on which measure you look at, Brown said, so the 20 per cent prediction only wipes out one year’s worth of gains.
Variable mortgage holders will take the biggest hit, but Brown does not expect the bank to raise the interest rate past 3.5 per cent.
”I just think given the rise in mortgage rates that we’re seeing, further upward pressure on interest rates, it’s very likely we’re going to see further falls in house prices,” Brown said.
“It’s pretty unlikely that the bank’s going to go any further than that much, just because of the pretty significant downside risk to the housing market at that stage.”
New homeowner Youseff Shehata knew interest rates would be going up when he was looking to purchase a home, but was still surprised by the Bank of Canada’s aggressive move this week. He has seen his mortgage payments increase by about $300 a month since making his condo purchase in Toronto in March, he said.
“When I bought my condo downtown, I did the math and I did a buffer because I knew that it might go up a little bit, but I never expected to be that much,” he told 鶹Ӱ Channel on Thursday. He added that it has been disappointing to see his mortgage payments increasing month after month.
Shehata said it is too late to consider reselling because he cannot guarantee he will be able to sell the condo for the price he paid. On the other hand, he says his friends have seen their rent increase dramatically as well.
“Now with interest rates going up, it’s very hard for people to buy, it’s hard for me to sell. So I think I’m in a very tough situation…even if I didn’t buy in the first place – still, the rental market is crazy.”
Throwing another curve into his budgeting plans was the jump in his living expenses like groceries. He is cutting some of his discretionary spending, eating out less, and has also asked his cleaner to stop coming. That was a difficult decision, Shehata said, knowing that she too had to deal with increasing living expenses as well.
“Inflation has been … crazy over the past few months and now I have to redo all the calculations and redo the math all over again,” he said.
Canadian musician Jacob Hoggard has been found not guilty of sexually assaulting a young woman in northeastern Ontario eight years ago. The former Hedley frontman had pleaded not guilty to sexual assault.
Police have arrested a Toronto woman in connection with three recent homicides and investigators say that they believe two of the victims may have been 'randomly targeted.'
The body of a British Columbia mountain climber has been located and recovered after the 39-year-old man was reported missing during a solo climb on Washington state's Mount Baker earlier this week.
An Ontario child died last month after coming into contact with a rabid bat in their bedroom, which was the first known human rabies case in Canada since 2019.
A French judge in the trial of dozens of men accused of raping an unconscious woman whose now former husband had repeatedly drugged her so that he and others could assault her decided on Friday to allow the public to see some of the video recordings of the alleged rapes.
A judge ripped into a Colorado county clerk for her crimes and lies before sentencing her Thursday to nine years behind bars for a data-breach scheme spawned from the rampant false claims about voting machine fraud in the 2020 presidential race.
A teen charged with the murder of another teen on Prince Edward Island last year has pleaded guilty to a lesser charge of manslaughter.
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NDP House leader Peter Julian says there's more his party wants to do in Parliament before the next election, but if the current dysfunction continues it will become a factor in how they vote on a confidence measure.
Canadian musician Jacob Hoggard has been found not guilty of sexually assaulting a young woman in northeastern Ontario eight years ago. The former Hedley frontman had pleaded not guilty to sexual assault.
Police have arrested a Toronto woman in connection with three recent homicides and investigators say that they believe two of the victims may have been 'randomly targeted.'
The body of a British Columbia mountain climber has been located and recovered after the 39-year-old man was reported missing during a solo climb on Washington state's Mount Baker earlier this week.
A northeastern Ontario jury has started deliberating in Canadian musician Jacob Hoggard's sexual assault trial, we can now tell you what they weren't allowed to hear.
At least two people are dead and others are injured after a fire ripped through a century-old building in Old Montreal early Friday morning, sources told Noovo Info.
A teen charged with the murder of another teen on Prince Edward Island last year has pleaded guilty to a lesser charge of manslaughter.
A rural Colorado county courthouse beefed up security Friday after threats were made against staff and a judge who sentenced former county clerk Tina Peters to nearly nine years behind bars for her role in a data breach scheme catalyzed by the lie that the 2020 election was stolen from former President Donald Trump.
Oklahoma's top education official is seeking to purchase 55,000 Bibles for public schools and specifying that each copy contain the Declaration of Independence and U.S. Constitution, which are not commonly found in Bibles but are included in one endorsed by former President Donald Trump.
A French judge in the trial of dozens of men accused of raping an unconscious woman whose now former husband had repeatedly drugged her so that he and others could assault her decided on Friday to allow the public to see some of the video recordings of the alleged rapes.
A judge ripped into a Colorado county clerk for her crimes and lies before sentencing her Thursday to nine years behind bars for a data-breach scheme spawned from the rampant false claims about voting machine fraud in the 2020 presidential race.
The U.S. and British militaries struck more than a dozen Houthi targets in Yemen on Friday, going after weapons systems, bases and other equipment belonging to the Iranian-backed rebels, U.S. officials confirmed.
The fallout from storm damage to a North Carolina factory that makes critical hospital supplies will be felt broadly and could linger, experts say.
NDP House leader Peter Julian says there's more his party wants to do in Parliament before the next election, but if the current dysfunction continues it will become a factor in how they vote on a confidence measure.
Prime Minister Justin Trudeau is set to announce funding to support French-speaking African countries and initiatives to promote the French language in the Francophonie.
Defence Minister Bill Blair says Israel has the right to defend itself in 'a calibrated and proportional way' following Iran’s ballistic missile attack against Israel on Tuesday.
An Ontario child died last month after coming into contact with a rabid bat in their bedroom, which was the first known human rabies case in Canada since 2019.
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The jury tasked with determining if Canadian musician Jacob Hoggard sexually assaulted a young woman in northeastern Ontario eight years ago began deliberating Friday after nearly two weeks of testimony that saw the singer and his accuser give starkly different accounts of what happened.
Brazil's Supreme Court said on Friday that lawyers representing social media platform X did not pay pending fines to the right bank, postponing its decision on whether to allow the tech firm to resume services in Brazil.
Canada's airlines have failed in their challenge of air passenger protection rules that the federal government implemented in 2019.
The Vatican Bank has fired two employees whose recent wedding violates a newly-introduced ban on marriages between staff.
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Paul Pogba has had his four-year ban for doping reduced to 18 months after appealing to the Court of Arbitration for Sport.
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Caitlin Clark has been named the WNBA Rookie of the Year in a near-unanimous vote, giving the Indiana Fever back-to-back winners after Aliyah Boston won the honour last season.
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A group of classic car enthusiasts donated hundreds of blankets to nursing homes in Nova Scotia.
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What does New Westminster's təməsew̓txʷ Aquatic and Community Centre have in common with a historic 68,000-seat stadium in Beijing, an NFL stadium and the aquatics venue for the Paris Olympics? They've all been named among the world's most beautiful sports venues for 2024.
The last living member of the legendary Vancouver Asahi baseball team, Kaye Kaminishi, died on Saturday, Sept. 28, surrounded by family. He was 102 years old.
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Police have arrested a Toronto woman in connection with three recent homicides and investigators say that they believe two of the victims may have been 'randomly targeted.'
Canadian musician Jacob Hoggard has been found not guilty of sexually assaulting a young woman in northeastern Ontario eight years ago. The former Hedley frontman had pleaded not guilty to sexual assault.
Toronto Public Health has confirmed two cases of listeria in the city believed to be connected to ready-to-eat deli meat products sold by Summerhill Market.
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Gas prices in Ottawa are set to rise this weekend after a slight uptick overnight.
Canadian musician Jacob Hoggard has been found not guilty of sexually assaulting a young woman in northeastern Ontario eight years ago. The former Hedley frontman had pleaded not guilty to sexual assault.
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The owner of a Gatineau, Que. café says it's 'silly' that Quebec's language watchdog is telling the business to write its Instagram posts in French.
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Regina kids facing mobility issues were gifted toy cars through the Go Baby Go program.
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Saskatoon police arrested a homeless person at the scene of an encampment underneath the University Bridge on Friday morning.
Canadian musician Jacob Hoggard has been found not guilty of sexually assaulting a young woman in northeastern Ontario eight years ago. The former Hedley frontman had pleaded not guilty to sexual assault.
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The Ministry of Labour is investigating a workplace incident that claimed the lives of two people in Georgian Bluffs, south of Owen Sound.
Eleven victim impact statements were submitted into court during the proceedings.
Middlesex OPP have shuttered a road between Mount Brydges and Komoka today - Amiens Road is currently closed between Glendon Drive and Oriole Drive.
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To enhance inclusivity at Lethbridge Polytechnic, the institution has launched a new accessibility micro-credential.
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A soccer game in England on Tuesday night drove a spike in online traffic across the Atlantic to a website launched by the Newfoundland and Labrador government.
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