The Bank of Canada has decided to raise interest rates once again, a move that was half-expected.
Today’s AnnouncementThe Bank stated that, with core inflation between 3.5-4%, and an excess of demand, “monetary policy is not restrictive enough to return supply and demand into equilibrium and to sustainably bring inflation to the target of 2%.”
Benjamin Reitzes of BMO said that the tone was “pretty aggressive,” and it is not surprising, given recent strong data.
This includes an increase in CPI inflation, ending a trend of deceleration for five months. The headline inflation rate rose from 4.3% to 4.4%, mainly due to higher rents and mortgage interest rates.
In April, the Canadian economy added 41,000 new jobs, more than twice what analysts expected. This kept the unemployment at 5%, for the fifth consecutive month.
In a note of research, he said that policymakers would continue to evaluate the data coming in on inflation, excess demand, wage increases, and pricing behavior by corporations. If the data are stable over the next few weeks, a 25-bps increase in July is likely.
RBC’s Josh Nye agrees, noting “that it’s unusually few weeks before the rate decision in July, but this period is full of key releases, including two employment reports and another CPI, as well as an April GDP update and May flash and the Q2 Business Outlook Survey.”
He said that timing the slowdown was difficult. “The data must soften in order to prevent another rate increase.
The next Bank of Canada interest rate decision is scheduled for July 12, 2023.
Mortgage borrowers are suffering “more pain and longer”
Ron Butler, Butler Mortgage Tweet this The decision will result in a rise in monthly payments for those who have an adjustable-rate, and a longer amortization period for those who pay based on a variable-rate with static-payments.
The bad news keeps coming with the renewal of mortgages [coming up] ” Soon,” wrote he. “[And] After the spring housing market, we are likely to see some further slowdown.[to] “More pain, for longer.
Banks, other financial institutions and the Bank of Canada are all expected to raise their prime lending rates. This rate is used for pricing variable-rate mortgages as well as personal loans and Home Equity Lines of Credit (HELOCs). Over the next few days, prime rate is expected to rise up to 6,95%.
The yields on bonds have risen to 15-year records
Rates for those looking to get a mortgage with a fixed rate are likely to increase as well. Rate hikes Several lenders have been contacted in the last two weeks.
Rates could rise further, especially after the surge in bonds yields that occurred on Wednesday morning as a result of Bank of Canada’s announcement of a rate increase. The markets are now pricing in an almost 100% chance of another quarter-point Bank of Canada interest rate increase by September.
Government of Canada’s 5-year bond yield soared by 20 basis points, reaching a record high of 3.75 percent. The yields on the two- and three-year bonds also hit similar highs Early this Week.
Markets anticipated a pause. The bond market has revalued all assumptions now that the increase is complete,” Ryan Sims told CMT. Sims was a former investment banker and broker at TMG The Mortgage Group. These higher yields on 5-year bonds will have a direct impact on mortgage rates within the next week.
John Pasalis is the founder and President of Realosophy Realty. He said that these price increases would make it harder for homebuyers to purchase homes at their current rates.
He said that fixed rates had been rising over the last few weeks. Based on what’s happening on the bond markets today, they are expected to rise even more. Tweet this.
He continued, “Part of what motivated buyers to return earlier in the year was their belief that BOC had stopped raising rates.” The idea that BoC might not have finished raising rates, and that rates are likely to stay higher longer than expected should cool the FOMO that we saw in the market during the first half this year.
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