After hitting pause on rates, the Bank of Canada decided to increase their overnight target rate today to 4.75 percent from 4.5 percent. The prime lending rate is now sitting at 6.95 percent.
The conditions the Bank of Canada’s governor laid out justifying the bank’s pause on rate hikes have yet to be fulfilled. CPI inflation peaked in April at 4.4 percent, the first increase in 10 months. That’s far more than what the bank was forecasting when it took its foot off the brake. Spending on interest-sensitive goods increased, and housing market activity has recently increased.
“Based on the accumulation of evidence, Governing Council decided to increase the policy interest rate, reflecting our view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the two percent target,” the Bank of Canada said in a news release announcing its decision.
Bank of Canada governor Tiff Macklem says he knows Canadians are struggling with creeping grocery bills, spiking mortgage rates and stagnant wages. Nevertheless, he’s asking people to be patient just a little bit longer as high-interest rates work to wrangle inflation down and improve the cost of living.
While inflation has fallen from the 8.1 percent it peaked at last June, it’s still substantially higher than the bank’s target of two percent.
The idea behind hiking the interest rate is to discourage borrowing, decrease spending, and bring down inflation so that costs become more stable overall. The Bank of Canada is hopeful that inflation will fall to 3 percent this summer.
If you need advice on your variable rate mortgage, don’t hesitate to reach out to explore your options.