Bank of Canada raises its key interest rate to 5%

10th rate hike by central bank since March 2022

The move was expected by economists after Statistics Canada released its June labour force survey last week showing that Canada added 60,000 jobs last month — further contributing to an overheated economy.

Some of the country's biggest lenders, including the Royal Bank of Canada, CIBC, Bank of Montreal and TD Bank, have already announced that they will match their increase effective Thursday to align with that of the central bank's.

Following the announcement, experts diverged on whether Canadians could expect another increase after the summer. Trading in investments known as swaps — which bet on future central bank moves — imply there is a better than 75 per cent chance of another small hike at the bank's next meeting on Sept. 6.

The effects of interest rate hikes can sometimes take a year or a year-and-a-half to play out in the economy.

"There's an element of patience, and I think that's why as well you see [the bank] being as noncommittal as they were today, with respect to whether they will be performing more hikes," Desjardins chief economist Jimmy Jean told CBC News in an interview.

"They're trying their best to communicate something to Canadians that can provide them with some sense of clarity. But the problem is that they don't have that clarity themselves."

Could be mid-2025 before bank hits inflation target

Wednesday's rate hike marks the 10th by the central bank since March 2022. It hit pause on those hikes in January for a few months to determine whether the economy had sufficiently cooled, then resumed its campaign in June.

"Global inflation is easing, with lower energy prices and a decline in goods price inflation. However, robust demand and tight labour markets are causing persistent inflationary pressures in services," the bank wrote in a release.

During a mid-morning news conference on Wednesday, Bank of Canada governor Tiff Macklem said the bank expects inflation to ease but that it could take until the middle of 2025 to hit its two per cent target.

That's six months later than was forecast in April.

"We've been clear about the indicators we are watching, and it's clearly too early to be talking about interest rate cuts," Macklem said, adding it's also too soon to tell how much impact the rate increases are having.

"We are certainly trying to balance the risks of over- and under-tightening, and we'll be taking it one meeting at a time."

---

The bank's Monetary Policy Report noted that the bank would raise its rates because of persistent "excess demand."

Canada's population surpassed 40 million people last month and is growing at its highest annual rate since 1957. Population growth is a key factor contributing to job growth, consumer spending on goods and services, and housing demand. 

The inflation rate slowed to 3.4 per cent in the year up to May, down from 8.1 per cent last summer, as the central bank's efforts to rein in the number paid off. But rising food prices were still outpacing inflation — an ongoing trend since late 2021.

'I've thought about selling'

With Wednesday's rate hike, a typical mortgage holder can expect to pay more on their variable rate loan, starting on Thursday.

A homeowner with a $500,000, 25-year variable rate loan at a rate of 5.8 per cent on Tuesday would have been paying $2,512 a month. After Wednesday's hike, their rate is likely to jump to 6.05 per cent, which will bump their monthly payment up to $2,571 a month. That's an increase of more than $700 a year.

Exact numbers will depend on the specifics of the loan, but on average, mortgage analytics site RateHub.ca says mortgage holders can expect to pay $100 more per month on their mortgage after Wednesday's hike.

Leena Chandi, a single mother of three who purchased her Surrey, B.C., townhouse seven years ago, said she would lay down and cry if another hike were announced, as it was on Wednesday.

Leena Chandi, a single mother of three, purchased her Surrey, B.C., townhouse seven years ago. She's watched her variable mortgage rate double since the Bank of Canada began its aggressive campaign to cool inflation. (Martin Diotte/CBC)

Having started on a fixed mortgage, she switched to a new bank and took on a variable rate about a year-and-a-half ago — before the Bank of Canada began its quest to tame an overheated economy with a series of interest rate hikes.

"All of a sudden, boom. The first increase happened and I was like, 'OK, well, whatever, you know, that's fine, I can handle it," Chandi told CBC News.

"And then the second increase happened and then the third increase happened, and then the fourth and then the fifth, and now my mortgage payment is doubled."

Chandi said her biweekly payments increased from $800 to $1,300 during that period.

"I've thought about selling. I really have because ... my townhouse is now probably worth three times, almost 2½ times what I paid for it. But where am I gonna go?"

Mortgage rates driving inflation

Clément Bonnal, a Quebec City resident who bought his house in 2021, said his mortgage payments have increased by almost $700 per month. 

He said that a rate hike by the Bank of Canada is "nonsense" to him, as rising mortgage costs are now driving inflation, having climbed by 30 per cent in Statistics Canada data from June.

Bonnal questioned why the bank would continue to raise interest rates when inflation is close to its target range — and given that the impact of rate hikes can sometimes take more than a year to appear in the economy.

"If they continue to increase the rates, it's like a fireman that puts the fire in the forest," Bonnal told CBC News.

Carolyn Rogers, senior deputy governor of the Bank of Canada, said during the Wednesday news conference that while housing is sensitive to interest rates, housing demand is still outweighing supply and driving up prices.

"We target inflation," she said. "We don't target house prices, and we don't target any one sector or one item within the [consumer price index] basket."

 

 

 

 

 

I wonder if anyone listened to Bruce Sellery the CEO of Credit Canada talking about this on CBC today

Reply to David Amos

 

 

David Kingston
Maybe people should just work more.

 

 

Reply to David Kingston

Jason Leonard 
Reply to David Kingston.

  

 

 

 

Since corporations like the food companies are making record profits while their prices keep increasing, is charging them a short-term windfall tax ever considered? I know shareholders won't like it and they'll probably just charge even more to offset the tax but why are only people with variable mortgages and long-term lines of credit the ONLY ones who bear the brunt of higher interest rates and inflation?

    Reply by Luc Gervis.

2 hrs ago

We ....Must.....Punish....everyone
Reply by Andy Shilkenberg.
2 hrs ago

Loblaws balance sheet shows $8.5 Billion in debt
Reply by David Kingston.
2 hrs ago

Variable rate mortgages and long term LOCs borrowed money, that's why they pay for the interest
Reply by Robert Tyre.
2 hrs ago

Many countries in Europe and the UK have wind fall taxes. They however are not banana republics
Reply by Luc Newsome.
2 hrs ago

Tax is the only solution some governments know
Reply by Robert Tyre.
2 hrs ago

Nothing a good “restructuring” and a whole whack of tax deductible write downs won’t solve
Reply by Andy Shilkenberg.
2 hrs ago

Interest is tax deductible as it is an expense, but maybe provide an example of how what you are proposing helps them avoid paying principle and interest?
Reply by David Amos.
2 hrs ago

Oh so true
Reply by Troy Bodi.
2 hrs ago

And how much profit? Net worth?
Reply by Andy Shilkenberg.
2 hrs ago

The comment was about the brunt of interest rates, don't know what profit and net worth have to do with that.
Reply by Troy Bodi.
2 hrs ago

Loblaws can afford the debt. They might even be doing it strategically. 5% interest is fine if they can get the equivalent of 6 out of the customer. Vs average Joe that just wants to buy a house.
Reply by Andy Shilkenberg.
2 hrs ago

Because someone can afford something, then they owe? I paid 5% + when I bought my house; who owes me?
Reply by Sara Shepard.
2 hrs ago

Yes, but corporations artificially increasing prices to increase profit - e.g the 16-year bread price fixing scandal and 'greedflation' post supply-chain pandemic issues - are gouging the same people who took v.r. mortgages and, granted, they didn't have the foresight to know borrowing at historically low interest rates/free money for so long had to end sometime but they also couldn't have predicted 10 rate increases in 14 months.

 

 

Jessie MacDonaldThe Trudeau apologists are here.

But but but........insert today's talking point. It's nothing to do with the consequences of 8 years of policy decisions.

They're here all day long 365 days.

Real tax payers they are.

Reply toJessie MacDonald  

and there go to, best in the g7 for one thing or another.
 

Reply to Jessie MacDonald   

Interest rates are going up in every country on the planet. Is that Trudeau’s fault as well?

Reply to Paul Rodriguez

......for failed policies. 

Darren MacDonald
Reply to Andy Wall 

If you talk to Tiff, yes

Reply to Andy Wall

Those country's "leaders" did the same silly thing. That is why. Go look at their central bank's balance sheet.

 

Reply to Arron Wheatly 

you hinted at it. leaders are irrelevant, central banks run the show

 

 

Reply to Jessie MacDonald  

Welcome to the circus

 

 

Reply to Jessie MacDonald 

There is an implication that apology may be necessary for some action (or lack of it).

Whereas, in fact none is necessary.

So it is not clear to whom the comment is being addressed.

 

 

 

 

CBC missed this one…

“Gap between high and low income Canadian households widening at record pace: StatCan”
 

Reply to Luc Newsome

Go Figure 

 

 

Reply to Luc Newsome

It was just an oversight like CF's "fiscal anchors"

 

 

Reply to Luc Newsome

......on purpose. Just like they miss the labour force participation rate at 65% or doubling the money supply since 2015.

 

 

 

The Trudeau apologists are here.

But but but........insert today's talking point. It's nothing to do with the consequences of 8 years of policy decisions.

They're here all day long 365 days.

Real tax payers they are.

Comment by Luc Newsome.
5 min ago

CBC missed this one…

“Gap between high and low income Canadian households widening at record pace: StatCan”

    Reply by David Amos.

5 min ago

Go Figure

Comment by David Green.
8 min ago

What’s happening with housing and interest rates plus the high cost of everything is the result of the last 8years. There is no easy fix to it either just a lot of financial pain ahead, but could we please stop making it worse with more spending announcements every week.

    Reply by Arron Wheatly.

7 min ago

Doubling the money supply has dire effects. It's not like this hasn't been done before.

Some can not be reached or are incapable of learning from history.
Reply by Bill Harding.
6 min ago

The problem is the economy is too good to slow down, so the BoC put the brakes on. They do this when the economy overheats, and they should have reacted earlier.
Reply by David Amos.
4 min ago

content deactivated –

I concur
Reply by Arron Wheatly.
4 min ago

The economy is not too good. Just the opposite. If can't see it that's on you. The fact is there is too much cash chasing too few goods because of monetary policy.
Reply by David Amos.
3 min ago

Kinda sorta true
Reply by Craig Macneil.
2 min ago

Best economy in Canada's history.To much cash because the economy is so good and wages rose.
Reply by David Green.
1 min ago

Our economy is not healthy the is little investment other than more government debt.

Comment by David Amos.
10 min ago

I wonder if anyone listened to Bruce Sellery the CEO of Credit Canada talking about this on CBC today

Comment by Horst Jakob.
11 min ago

To all those that say I had a 14% mortgage once , I had one too , but I payed "only " sixty thousand for my home.

A lot of money back then but no comparison to today.

    Reply by Craig Macneil.

10 min ago

Wages was one quarter what they are now.
Reply by Arron Wheatly.
10 min ago

especially considering wages have not kept up to the cooked inflation numbers.
Reply by David Amos.
8 min ago

I had a home mortgage and business debts as well back in the early eighties when interest rates went through the roof
Reply by John Oliver.
8 min ago

I had a 6%+ rate in the last 20 years and I borrowed a lot more than 60 grand. More than double.
Reply by Brent Hiker.
8 min ago

It's all relative.
Reply by Bob Wessels.
8 min ago

inflation
Reply by John Oliver.
7 min ago

Wages would depend on job, city and exact time and place - I could counter - yeah, one wage-earner.
Reply by John Decarted.
7 min ago

ah yes, bo omers post this endlessly, forgetting that the wage to cost of living and housing indexes were waaaaaayyyy better back then
Reply by Arron Wheatly.
6 min ago

Purchasing power was much higher back then.
Reply by Craig Macneil.
6 min ago

Out of school as a millwright my first job paid 9 a hour.My son's first job as a Millwright paid 27 a hour.
Reply by Arron Wheatly.
5 min ago

Apprentice.
Reply by Craig Macneil.
5 min ago

I'm 54
Reply by Craig Macneil.
4 min ago

How did 12 percent interest rates then make purchasing power better?
Reply by John Decarted.
3 min ago

then you're young enough to use the internet to find the data
Reply by Craig Macneil.
1 min ago

What data?

Comment by Brent Hiker.
13 min ago

In May, year-over-year consumer price inflation fell to 3.4 per cent, from 4.4 per cent in April. That’s less than half the peak inflation recorded last June (8.1 per cent). Grocery prices, however, are still rising at a dizzying pace. Grocery inflation was 9.0 per cent in May, barely changed from April.

Meanwhile, the costs of most inputs purchased by food retailers have slowed rapidly — and in some cases are falling outright. Crop prices fell 22 per cent over the last year. Energy costs fell by one-third. Meat and dairy inputs rose just 4.5 per cent (half the pace of final groceries), and fruit and vegetable inputs just 1.2 per cent.

The cost of producing and selling groceries is moderating. Yet grocery prices are still surging. What gives? - The Star July 9/23

    Reply by Troy Bodi.

11 min ago

We gives. And Galen takes.
Reply by Craig Macneil.
10 min ago

Corporate greed
Reply by William Best.
7 min ago

Supermarket CEOs blame higher costs for their own inputs and purchases, claiming they are simply passing those costs on to consumers. But elementary school math tells you that if costs and prices grow by the same amount, profits won’t change. Even if nominal profits merely kept pace with higher prices, margins wouldn’t change — yet they have grown significantly.
Reply by David Green.
4 min ago

We see those inflation numbers posted that claim inflation is down but with ever increasing grocery, energy and housing expenses that claim seems to be unfounded.
Reply by David Amos.
1 min ago

Bingo