Many people were shocked when the Bank of Canada raised its benchmark interest rate to 4.75%, the first hike since January. This decision comes as the Canadian economy has shown unexpected resiliency, with faster-than-expected growth.
In Canada, there has also been a recent increase in inflation. The central bank’s decision has fueled anticipation that additional rate hikes are on the way.
The recent rate hikes will have a huge impact on variable-rate mortgage borrowers, forcing their payments to skyrocket. The announced rate increases, for example, have already added almost $1000 to the monthly payment on a $500,000 mortgage. As a result, Canada’s biggest banks quickly followed suit, raising prime lending rates to 6.95 percent.
However, some analysts are calling the bank’s decision into question. They point out that bank-set mortgage interest rates have risen by 28% in the last year. This exacerbates the affordability of housing causing a lot of market volatility.
🔔📈Bank of Canada raises interest rates, signaling confidence in the economy. #Finance
— Walletor (@walletorapp) June 8, 2023
Higher mortgage rates have an influence on the rental market in addition to homeowners. Property owners are under pressure, with some investment properties proving unprofitable.
Despite differences of opinion, economists agree that the Bank of Canada will continue to raise interest rates. Many economists anticipate another 25-basis-point increase, perhaps raising the policy rate to 5%. The government of Canada is still worried about maintaining price stability and controlling debt levels.
Finally, the Bank of Canada raised interest rates, surprising the market. More hikes are expected as the economy strengthens. The Bank of Canada’s decision to raise interest rates startled the market, and further hikes are predicted in the future. While this decision may have ramifications for the housing market, it underscores the efforts to combat inflation. As the economy evolves, it will be critical to track how these rate increases affect Canadians and the wider financial environment.