The BOC increased the target for the overnight rate to 3.25% with continuing its policy of quantitative tightening. The banks, nonbanks, credit unions & private lenders – will all adjust their prime lending rates to follow the announcement in the days ahead.
Lenders will adjust their prime rates respectively to 5.45% from 4.70%. *May differ based on lenders initial prime*
This will impact variable rate, adjustable rate, and floating rate mortgages – alongside home equity lines of credit, personal lines, credit cards & unsecured debts. To discuss the impact on your personal liabilities & financial situation and to determine the next steps or changes you may want to take in the week/months ahead please follow the link below to schedule a meeting or email us:
Why is this happening?
The global & national economies are evolving broadly in line with the BOC projections – the effects of supply chain disruptions, the war in Ukraine and COVID 19 outbreaks continue to dampen growth and boost prices.
Globally:
– Global inflation remains high, and core inflationary measures are moving up around the globe.
– Economic activity has moderated in the US, but the labour market remains strained.
– China is facing ongoing challenges from COVID shutdowns and market declines.
– Commodity prices have been volatile: oil, wheat and lumber have moderated but natural gas prices have risen.
Nationally:
– CPI inflation eased in July to 7.6% from 8.1% – largely due to a drop in gasoline prices.
– If we exclude gasoline from the index – it showed further price pressures, particularly in the service sector (largely due to labour pressures)
– The BOC core measures of inflation continued its upward trend from 5 to 5.5% in July 2022.
– The Canadian Economy – continues to be in excess demand and labour markets are further tightened.
– The Canadian GDP grew by 3.3% weaker than anticipated – the domestic demand was VERY strong – consumption grew 9.5% and business investment was up 12%.
– Higher interest rates are pulling back the housing market as anticipated – following unsustainable growth during the pandemic.
What lies ahead?
The Bank of Canada outlined its summary of findings below for Q4 of 2022 – which I wanted to share with you:
“Due to the above-outlined support for higher interest rates – the central banks around the world continue to tighten monetary policy. Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched. The Bank continues to expect the economy to moderate in the second half of this year, as global demand weakens and tighter monetary policy here in Canada begins to bring demand more in line with supply. Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.”
Next Announcement:
October 26th, 2022 – and the next full outlook for the economy, inflation, risks all included in the Monetary Policy Report will be released then too.
Yours truly,
Catherine Ellis
