Cost of borrowing climbs again as interest rate rises
Starting Wednesday, taking out a loan or mortgage will cost you more.
The Bank of Canada announced Wednesday it was hiking its key lending rate by 75 basis points to 3.25 per cent for both the overnight and deposit rates.
Conservative MPs slammed the Liberal government for the interest rate increase.
“Despite being warned that out-of-control spending would continue to put enormous upward pressure on inflation and interest rates, Justin Trudeau and his NDP allies have refused to change course,” fumed Conservative Shadow Minister for Finance Dan Albas, and Shadow Minister for Innovation, Science and Industry Gerard Deltell, in a statement. “As a result of continuing their reckless tax and spend agenda, Canadians are now being forced to contend with a fourth consecutive outsized interest rate hike.”
The Bank of Canada announcement did not mention domestic government spending, but again pinned the blame for high inflation and its increase on global factors.
“The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices,” said the bank. “Global inflation remains high, and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy.”
Although the labour market in the U.S. remains tight, economic activity has moderated. China continues to impose shutdowns because of COVID-19.
In Canada, July’s inflation rate eased some. As gas prices fell, inflation was 7.6 per cent, down from 8.1 per cent the month before. However, other prices continued to climb, notably in services.
“The Canadian economy continues to operate in excess demand, and labour markets remain tight,” said the bank. “Consumption grew by about 9.5 per cent, and business investment was up by close to 12 per cent. With higher mortgage rates, the housing market is pulling back, as anticipated, following unsustainable growth during the pandemic.”
The bank expects the economy to moderate in the second half of 2022, bringing demand more in line with supply.
It also warned future increases are not out of the question.
“Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further,” it stated. “As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target.”
That target is 2 per cent.