First National Financial LP

Residential Market Commentary - Rising rates. What’s next?

  • First National Financial LP

Now that the Bank of Canada has started its latest rate raising cycle, market watchers are shining up their crystal balls and looking for clues about what is to come.

What many are seeing is a signal that the central bank is ready to push up its benchmark overnight rate by 50 basis points – half a percentage point – at its next setting on April 13.  Earlier this month The Bank launched its tightening program with a quarter-point increase, putting its policy rate at 0.50%.

Analysts expect the BoC will boost the rate at each of its next 6 to 8 settings, bringing it to between 2.00% and 2.50%.  The U.S. Federal Reserve has also hinted it is prepared to boost its trendsetting rate with a series of half-point hikes.

In a speech to American bankers, Bank of Canada Deputy Governor Sharon Kozicki cited inflation as a key reason for the interest rate increases.

“The reasons are straightforward:  Inflation, in Canada is too high, labour markets are tight and there is considerable momentum in demand,” she said.

Inflation hit 5.7% last month, a 30-year high and nearly triple The Bank’s 2% target.  There are also fears the Russian invasion of Ukraine will trigger even higher inflation.

While The Bank says high household indebtedness remains a key vulnerability in Canada, it also points out that those households have increased savings due to government supports and reduced spending during the pandemic.  The Bank feels that could provide a cushion against higher interest payments.