Bank of Canada raises key interest rates by 50 basis points for the 2nd time in a row – National

Bank of Canada raise its benchmark interest rate up 1.5% on Wednesday, marking the second straight gain to half a percentage point.

The 50-point move is widely anticipated by economists, who expect the central bank to raise interest rates for a third time this year in an attempt to reduce highs. inflationary levels.

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Canadians could raise interest rates 0.5% this week on ‘persistent’ inflation

Click to play video: 'Raising inflation affects retirement plans'

Rising inflation affects retirement plans

Rising inflation affects retirement plans

Wednesday’s increase marks the first time the Bank of Canada has raised interest rates by 50 basis points in consecutive decisions in nearly 25 years.

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“With the economy experiencing excess demand, and inflation remaining above target and expected to move higher in the near-term, the Board of Governors continues to assess that interest rates will need to rise. more,” Bank of Canada said in a statement.

“The pace of further increases in policy rates will be led by the Bank’s ongoing assessment of the economy and inflation, and the Board of Governors stands ready to act more aggressively if needed to meet its commitment to achieve this goal.” two percent inflation target.”

Click to play video: 'Interests expected to rise again'

Interest rates are expected to rise again

Interest rates are expected to rise again

Initial rate hikes to 25 basis points in March followed by 50 basis points in April had a cooling effect on the Canadian housing market as rising mortgage rates sent many buyers rather than stay out.

Several cities including Toronto saw sales declines and price drops last month.

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Statistics Canada said the annual inflation rate was 6.8% nationally in April, with soaring food and shelter prices pushing the Consumer Price Index (CPI) higher.

CFIB says small businesses will find it difficult

Simon Gaudreault, chief economist for the Federation of Canadian Independent Businesses (CFIB), said the latest rate hike puts many small businesses in a difficult position.

“Only 35% of businesses have no COVID debt, and the average debt of small businesses in Canada is $160,000. So obviously, if you go into a situation where (economic) recovery is far from complete for many small businesses, other data shows that only 40% is back to sales. normal before the pandemic… a lot of small businesses are in a difficult situation,” he told Global News.

“You add that supply chain issues, labor shortages, all of that are creating a lot of financial pressure on small businesses right now. So in a situation where we can expect rates to probably rise in the near future and more in the near future, that’s clearly a tough spot for small businesses.”

Click to play video: 'Bank of Canada raises base rate 50 points for 2nd time in a row'

Bank of Canada raises key interest rate by 50 basis points for 2nd time in a row

Bank of Canada raises key interest rate by 50 basis points for 2nd time in a row

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When her photography business took off last year, Stephanie Haughton moved into a larger home with her family and got a variable-rate mortgage as her agent suggested.

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Rates were low at the time, but the latest hike means that Bowmanville, Ont., small business owners may have to raise prices for their customers soon.

“I don’t have a big mortgage,” she told Global News.

“I guess I’m the lucky one but for me it still means $100 a month. … If I don’t have many clients that month, that’s the extra $100 I need to find for me and my kids.

“If I had known that this could be an underlying situation I was in, I would have gone with a flat rate last year. I put my trust in the mortgage agent, and obviously, he didn’t know what was going to happen, but I definitely regret choosing the variable rate. It was stressful.”

Click to play video: 'Adapting to inflation in a post-COVID world'

Adapting to Inflation in a Post-COVID World

Adapting to Inflation in a Post-COVID World – May 20, 2022

In Windsor, small business owner Christopher Courey told Global News that rising inflation has left him facing a difficult balancing act.

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“We’ve seen some products go up two or 300% year over year in cost. They’re not high value items so it’s not noticeable, but the percentages are pretty big in both businesses where we’ve seen some pretty steady price increases,” said Courey, who has two retail store with his wife said.

“In some cases, we raised our retail prices, and in other cases it was up to us to depend on how we feel about consumers and whether they can continue to buy the same items. that or not, or then they will be price sensitive about them.

“With the supply chain, in terms of labor shortage, we find that our suppliers cannot deliver orders regularly or continuously because they themselves are facing labor shortages despite While we may not have a shortage of workers in our small business, we are feeling the ripple effects because they are understaffed. ”

How could this impact the housing market?

Previous interest rate hikes by the Bank of Canada have had the effect of cooling down Canada’s warming housing market. Several cities have seen declines in sales and prices over the past two months.

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RATESDOTCA’s Sung Lee says consumers are escaping the buying frenzy during the COVID-19 pandemic and are assessing how higher borrowing costs will impact their budgets, RATESDOTCA’s Sung Lee said in a statement. An announcement.

“It’s easy to forget that we’ve had two years of artificially low rates. If you look at the past 25 years, the five-year average fixed-mortgage rate was 5.65% and could change at 4.38%, still higher than it is now,” Lee said.

“Despite further increases, we are getting closer to normalizing rates. The most at-risk group of homeowners are those who have tried too hard to buy a home in the past two years without a sound game plan when rates rise. “

Click to play video: 'Sticker shock: Canada's housing inflation keeps potential buyers out'

Sticker shock: Canada’s housing inflation keeps potential buyers on the sidelines

Sticker shock: Canada’s housing inflation keeps potential buyers on the sidelines – May 26, 2022’s Leah Zlatkin said each rate hike has Canadian homeowners and hopeful buyers adjusting their affordability expectations.

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“While this shift can be difficult to manage along with other rising costs of living right now, it is important to remember that before the pandemic, the overnight rate was 1.75% and we are still not back to that level yet,” added Zlatkin.

– with word files Anne Gaviola

© 2022 Global News, a division of Corus Entertainment Inc.

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