As widely expected, the Bank of Canada raised its overnight policy rate
this morning to
0.5 per cent, an increase of 25 basis points. In the
statement accompanying the decision the Bank noted that the invasion of
Ukraine by Russia has added a major new source of uncertainty to the
global economy, and it expects the fallout to include upward pressure on
inflation and possible supply disruptions. However, economic growth in
Canada finished 2021 stronger than expected and persistently higher
inflation increases the risk up a continued upward move in inflation
expectations. As such, the Bank states that it believes interest rates
will need to rise further.
The Bank must now contend with inflation and inflation
expectations that are much higher than the Bank is comfortable with,
while also monitoring the potential impact of the Russian invasion of
Ukraine on financial markets and commodity prices. While we expect the
Bank will continue to tighten, ultimately bringing its overnight rate to
1.75 per cent by early 2023, there is clearly more uncertainty in the
global economy now than when the Bank decided to embark on this
tightening cycle. That uncertainty is already being reflected in
long-term Canadian interest rates, with the once rapidly ascending
5-year Govt of Canada bond yield falling about 30 basis points in recent
days.
For an analysis of how this rate-tightening cycle may impact
the BC housing market, please see our most recent Market Intelligence
Report,
"Too Tight? The Impact of Bank of Canada Tightening on BC Housing Markets"
PS... If you need a recommendation to an excellent mortgage broker, send me a message.