Bank of Canada's first rate hike of 2023 could also be its last
Today marked the eighth consecutive rate hike by the Bank of Canada, and the first of 2023. If market expectations are correct, it could also be its last of this rate-hike cycle.
As expected, the BoC raised rates by 25 basis points, bringing its overnight target rate to 4.50%—425 bps higher than where it was last March.
In its statement, the Bank pointed to ongoing tight labour market conditions and “persistent excess demand” as reasons for the rate hike, but also clearly indicated it's preparing for a pause.
"...if economic developments evolve broadly in line with the [Bank's] outlook, Governing Council expects to hold the policy rate at its current level whil...
As bond yields fall, mortgage providers are cutting fixed mortgage rates
With bond yields nearly 60 basis points off their highs reached earlier this month, fixed mortgage rates are slowly following and trending downward.
Over the past week and a half, certain lenders and national brokerages have reduced rates by between 10 and 15 bps. According to data from MortgageLogic.news, the average nationally available 5-year fixed rate is now 5.07%, down from 5.19% over the same period.
The move follows the recent decline in the 5-year Government of Canada bond yield, which typically leads fixed mortgage rates.
The 5-year yield closed at 3.18% on Monday, down from 3.77% earlier this month and the 14-year high of 3.89% reached in October.
More borrowers to reach their trigger rate as prime rate rises to 5.95%
Variable-rate mortgage holders should know the drill by now.
Prime rate is rising another 50 basis points on Thursday, increasing borrowing costs once again for those with a variable-rate mortgage or home equity line of credit (HELOC).
RBC, BMO and TD Bank kicked off the prime rate increases on Wednesday, followed by the remaining Big 6 banks and other financial institutions across the country. In the case of TD, its mortgage prime rate has risen to 6.10%, the result of an additional 15-bps hike the bank made in 2016 independent of a Bank of Canada rate move.
The announcements followed the Bank of Canada’s 50-bps rate hike earlier in the day.
How borrowers ca...
The Bank of Canada's September rate hike will be its last: CIBC
If CIBC economists are correct, the Bank of Canada's expected rate hike next week will be its last of this rate-hike cycle.
In a report published last week, economists Benjamin Tal and Karyne Charbonneau say they expect the Bank of Canada to hike another 75 bps next week, and will then call it a day, leaving the overnight target rate at 3.25% "for the duration of 2023."
They also see the 5-year bond yield averaging 2.45% in 2022 and 2.3% in 2023, which they say translates to close to $19 billion of additional debt payments this year.
"...out of the total household debt of $2.7 trillion, close to $650 billion (24%) face an actual increase in interest payment this year...
Reaction to the Bank of Canada's 100-bps shocker
Having been behind the inflation curve for many months, the Bank of Canada today tried to get ahead of it by delivering a surprise 100-bps rate hike.
That brings the Bank's benchmark rate to 2.50%, a level not seen since 2008. Rates have now increased by 225 basis points, or 2.25 percentage points, since March.
In its accompanying statement, the Bank said it decided to "front-load the path to higher interest rates," because inflation is "higher and more persistent" than the Bank expected. The Banks also said it expects inflation to remain at around 8% "in the next few months."
In a press conference following the rate decision announcement, Bank of Canada Governor Tif...
The economy "needs" higher rates, says BoC's Macklem
While the Bank of Canada is currently still forecasting a "soft landing" for the Canadian economy, it's going to take higher interest rates to help that happen.
That was according to comments from Bank of Canada Governor Tiff Macklem, who spoke during a press conference following the release of the Bank's Financial System Review (FSR) on Thursday.
"We think the economy needs higher interest rates, and it can certainly handle higher interest rates," he told reporters.
He noted that rate hikes are needed to remove the "excess demand" in the economy and to tame spending.
When asked if the Bank would go so far as to purposely induce a recession to cool demand, M...
Bank of Canada widely expected to deliver another 50-bps rate hike this week
Markets and economists fully expect the Bank of Canada to deliver its second half-point rate hike in as many months when it meets on Wednesday.
In June, the Bank hiked its overnight target rate by 50 basis points, bringing it to 1.00%, citing an "increasing risk" that expectations of high inflation could become "entrenched."
With headline inflation reaching a 31-year high of 6.8% in April, and core inflation at a 32-year high of 4.23%, the Bank of Canada is widely expected to continue its aggressive pace of rate hikes in the coming months.
“We are confronted with an economy that is showing clear signs of overheating, very tight labour markets and this perfect infla...
Bank of Canada Prepared to Raise Interest Rates "Forcefully"
Targeting high inflation is the Bank of Canada's top priority, and it's prepared to raise interest rates "forcefully" if that's what's needed.
Bank of Canada Governor Tiff Macklem made the comment in a speech before the Senate Committee on Banking, Trade and Commerce on Wednesday.
"The economy needs higher rates and can handle them. With demand starting to run ahead of the economy’s capacity, we need higher rates to bring the economy into balance and cool domestic inflation," he said.
Macklem noted that inflation is now at a three-decade high of 6.7%, and is expected to remain above the Bank's target range of 1% to 3% for the remainder of the year.
Big Banks Raise 5-Year Fixed Rates Above 4%
Most of the country's big banks are now advertising special-offer 5-year fixed rates above 4%.
This includes RBC, TD, BMO, CIBC and National Bank of Canada, along with many other mortgage lenders.
Among national providers, insured 5-year fixed rates are now averaging 3.98% while uninsured mortgages average 4.12%, according to data tracked by Rob McLister, rate analyst and editor of Mortgage Logic. That's up about 25 basis points since the start of April and up 10 bps since Wednesday alone.
The move follows the latest leg-up in the Government of Canada 5-year bond yield, which soared to a fresh 11-year high of 2.80% last week on higher-than-expected inflation data.
Variable Mortgage Rates to Rise as Prime Rate Jumps to 3.20%
Variable-rate mortgage holders are about to see their interest costs rise again after Canada's Big 5 banks announced a 50-basis-point hike to prime rate on Wednesday.
This followed the Bank of Canada’s decision earlier in the day to raise its overnight target rate by 0.50% to 1.00%, citing excess demand in the economy and inflation "persisting well above target."
Prime rate, upon which variable mortgage rates are priced, will rise to 3.20% at RBC, BMO, CIBC and Scotiabank effective Thursday.
TD Bank remains a unique case, with its mortgage prime rate priced 15 bps higher, or 3.35%, the result of an additional 15-bps hike the bank made in 2016 independent of a Bank o...