Last update: June 9, 2023
Bank of Canada Hikes Prime Rate, Signalling More Pain Ahead
The Bank of Canada raised its key interest rate by 0.25 percentage points on Wednesday, bringing the overnight rate to 4.75%. This is the highest level the rate has been since 2007.
The central bank said it is raising rates in an effort to cool inflation, which is running at a 30-year high. Inflation has been driven by rising prices for food, energy, and shelter.
The rate hike is expected to have a significant impact on Canada’s economy. It will make it more expensive for businesses to borrow money, which could lead to slower economic growth. It will also make it more expensive for consumers to borrow money, which could lead to lower spending.
The rate hike is also expected to have a significant impact on the mortgage business. Mortgage rates are closely linked to the Bank of Canada’s key interest rate. As a result, the rate hike is expected to lead to higher mortgage rates.
Higher mortgage rates will make it more expensive for people to buy homes. This could lead to a slowdown in the housing market. It could also make it more difficult for people to afford their monthly mortgage payments.
The Bank of Canada has signaled that it is prepared to raise rates further if necessary. This means that the pain of higher interest rates is likely to continue for some time.
Here are some of the key impacts of the recent prime rate increase:
- Slower economic growth: The higher cost of borrowing will make it more expensive for businesses to invest and expand. This could lead to slower economic growth.
- Lower spending: The higher cost of borrowing will also make it more expensive for consumers to buy goods and services. This could lead to lower spending, which could further slow economic growth.
- Slower housing market: The higher cost of borrowing will make it more expensive for people to buy homes. This could lead to a slowdown in the housing market.
- More difficult to afford monthly mortgage payments: The higher cost of borrowing will make it more difficult for people to afford their monthly mortgage payments. This could lead to an increase in mortgage defaults.
The Bank of Canada is raising rates in an effort to cool inflation. However, the higher cost of borrowing could have a significant impact on the Canadian economy. It remains to be seen whether the benefits of lower inflation will outweigh the costs of slower economic growth and a weaker housing market.