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September has arrived and the central bankers are back from their summer vacations. With that they resume setting interest rates and fighting inflation.  Leading up to today market watchers were forecasting an increase of  50 - 75 basis points.  Today at 10am the BoC raised the overnight rate by 75 basis points to 3.25%. They indicated in the announcement that "the economies are evolving broadly in line with their July projection". This increase has pushed the BoC’s trend-setting overnight rate out of its neutral zone and into restrictive territory.  The Bank considers a 2% to 3% rate to be neutral; it neither enhances nor restricts economic growth. Market watchers are now suggesting that we can see the Bank of Canada stay put for the remainder [...]

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update on the recent Bank of Canada announcement. If you are like me I've been waiting all morning for this to see what direction the Bank of Canada was going to take.  As of 10AM EST on July 13, 2022, the Bank of Canada has increased their Overnight Rate by a full 1%. This exceeds what most had forecast but, as in the last Bank of Canada update there were indications that there would be a number of increases this year in an effort to combat inflation in the current markets. What's next? This will likely not be the last rate [...]

With inflation and interest rates continuing to rise there are renewed concerns about housing affordability in Canada. Statistics Canada pegged the inflation rate at 7.7% in May, its highest level in almost 40 years.  That set the stage for further speculation that the Bank of Canada would likely boost its trend-setting interest rate by 75 basis-points at its July setting.  Such a move would put it at 2.25%. The quarterly “Affordability Index” produced by one of Canada’s big banks cites rising interest rates as a key factor in declining affordability.  According to the bank’s measure the affordability index jumped nearly 4 percentage points to 54% in the first quarter.  That is its worst level since the early 1990s.  (Higher number = lower affordability.) The bank [...]

Today the Bank of Canada announce they are increasing its trendsetting interest rate by .50% bringing the overnight rate to 1½%.  This is the second consistent oversized increase and third overall for the year so far. It quoted “Inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food. In Canada, CPI inflation reached 6.8% for the month of April – well above the Bank’s forecast – and will likely move even higher in the near term before beginning to ease.”  This will lead to more increases throughout the year. Leading up to today’s announcement we’ve heard many forecasts concerning the outcome for the remainder of the year. Taylor Schleich, National Bank of Canada – with the upside to [...]

The Bank of Canada has stayed the course on interest rates in its final scheduled announcement of the year, indicating no change to its projection that its policy rate will rise in the middle quarters of 2022. The central bank said that while it was “closely watching” the inflation issue that has dominated headlines in recent weeks, it would hold its benchmark rate steady at 0.25% with rate hikes likely to begin at some point around the middle of next year. While it said the economy had “considerable momentum” into the fourth quarter, the Bank also noted the new Omicron variant of COVID-19 as a cause of some uncertainty having led to tightened travel restrictions in several countries and a decline in oil prices. The [...]

In its most recent rate setting the Bank of Canada decided, once again, to hold steady at 0.25%.  But in comments after the announcement, Governor Tiff Macklem sounded a new tone on inflation.  He said the Bank will stand up to it, and not just let inflation manage itself. Inflation in Canada is running at about 4.4%, more than double the Bank’s target, and it is forecast to rise even higher.  Up until now Macklem has called it “transitory”, suggesting inflation would sort itself out and return to normal, once post-pandemic labour shortages and supply bottlenecks ease. In his comments after the rate setting, Macklem revealed the Bank is now forecasting that inflation will be worse, and will last longer, than originally anticipated.  And, he [...]

Canadian home buyers are taking their mortgages to the max. The latest Consumer Survey by Canada Mortgage and Housing Corporation suggests more than 65% of recent home buyers bought the maximum amount of house they could afford. It may be a little surprising that number is not higher given the results of a recent, separate, survey on affordability by one of the big banks. It shows the median home price shot up by $38,000 between the first and second quarter of this year.  That is the widest margin in more than 25 years.  Compared to Q2 of 2020, the median price is up by $89,000. According to the report income growth and low interest rates had been helping to improve affordability over the past two [...]

The Bank of Canada made its fifth interest rate decision of 2021 and updated its outlook for inflation and economic growth. The Bank held its overnight rate at 0.25% and suggested that Canada’s economic recovery, while slightly slower than expected so far, should be stronger than anticipated in 2022. The next scheduled date for announcing the overnight rate target is September 8, 2021. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on October 27, 2021.

As COVID-19 continues to be pushed down in Canada, consumer spending is expected to go up.  The latest survey by the Bank of Canada suggests that will lead to an even greater demand for homes. The Bank’s Survey of Consumer Expectations, for the second quarter of 2021, indicates there is a general, overall optimism about the end of the pandemic and that consumers are prepared to do some spending as the virus fades and health restrictions are lifted. The survey indicates 40% of respondents managed to save more money than usual during the pandemic.  That group expects to spend about 35% of those savings over the next 2 years.  They indicate that much of that spending will be on activities that have been restricted during [...]

Much of the economic talk so far this year has centered on interest rates.  The main questions have been when they will start to rise and by how much.  In an attempt to provide answers economists and analysts monitor a key factor that guides interest rate policy: inflation. Inflation has been a non-issue in North America for the better part of 40 years.  That’s largely because after the last significant bout of inflation, in the late ‘70s through the mid ‘80s, central banks in Canada and the U.S. were given the job of keeping it under control.  At that time the Bank of Canada rate topped 21%, and mortgage rates looked more like credit card interest. Interest rates are the traditional tool used to control [...]