Back to Blog
13 Jul

Key Points of Bank of Canada’s 1% interest rate increase

General

Posted by: Adam Sale

Key Points from Bank of Canada’s 1% Rate Increase

As I’m sure you’ve heard by now, the Bank of Canada increased they’re overnight rate by 1%, this will increase the Prime interest rate to 4.70%.

Below is a snippet of the monetary policy report & key points

Tiff Macklem discusses the Bank’s strategy 10:55 – 14:20

Key Points from the Report

  1. The Canadian economy is in excess demand and short supply, this is causing inflation to increase.
  2. To bring inflation back to the 2% target the Bank is raising interest rates to reduce demand.
  3. The previous strategy to raise rates over a 2-year period would’ve lead to prolonged inflation and the need to raise rates even further.
  4. Bank of Canada has decided on a new strategy to “Front-Load Interest Rates” in an attempt to stifle demand and allow supply to catch up.
  5. The Bank was not prepared for the global economy to rebound from covid so quickly, which lead to excess demand for fuel and created many supply chain complications.
  6. Once demand is reduced, this will alleviate stress on fuel & supply chains and we should see inflation come back down.
  7. Expect a few more months of inflation in the 8% range before it begins decreasing.

Looking forward:

The Bank considers the neutral range of the overnight lending rate to be between 2% & 3%. Today’s rate increase is putting us right in the middle at 2.5%.

Tiff Macklem has said in the report he is considering raising the rate again to the upper bound (3%) or even slightly higher (3.25%). In the future I think its safe to say we can expect another (0.50% – 0.75%) rate hike.

Where’s the Opportunity?

If you have clients looking to purchase, renew or refinance the best mortgage rates are still being found at the Credit Unions for Fixed Rates and Monoline lenders for Variable rates.

Prospera Credit Union is still offering their 1-3 years fixed interest rates in the 4% range, and a 5-year fixed special at 4.99%

First National Financing has the best variable rate on the market at Prime – 0.90% for an insured mortgage.

If you would like to know more, lets connect!

Adam Sale Mortgages
778-215-4121