Date Posted: December 7, 2022
The Rate Increase
The Bank of Canada raising the overnight rate to 4.25% indicates we're still riding the wave of inflation, and it may take longer for the waters to settle. For some Canadians, that means they’ll continue to feel the pinch.
Inflation around the world remains high and broadly based. This reflects the strength of the global recovery from the pandemic, a series of global supply disruptions, and elevated commodity prices, particularly for energy, which have been pushed up by Russia’s attack on Ukraine. The strength of the US dollar is adding to inflationary pressures in many countries. Tighter monetary policies aimed at controlling inflation are weighing on economic activity around the world. As economies slow and supply disruptions ease, global inflation is expected to come down.
What Does This Affect?
The Bank of Canada’s target overnight policy rate affects the interest you pay from lenders like banks. The higher the overnight rate, the more interest you’ll pay. The increase of 0.50% means that for some variable-rate mortgages more of the money you pay each month will be going to interest rather than the principal. And if your trigger rate is reached, you can anticipate higher monthly costs.
Getting Back on Track
"The Governing Council expects that the policy interest rate will need to rise further," the bank said. "Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding."
The bank predicts Canada’s growth will slow from 3.25 per cent this year, to just under 1 per cent in 2023. Global growth will also decrease to 1.5 per cent next year, a slowdown not seen since 1982, excluding the COVID-19 pandemic and the 2008 financial crisis.
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