The Bank of Canada raised its key lending rate by 100 basis points this morning, bringing it to 2.50%.
The Bank said inflation is “higher and more persistent” than what it had forecast in April, and will likely remain “around 8% in the next few months.”
In its statement accompanying the decision, the Bank said, “With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates…”
What happens now?
In the coming days, banks and other financial institutions are expected to follow the Bank of Canada’s lead and hike their prime lending rate, which is used to price variable-rate mortgages and personal and home equity lines of credit (HELOCs). Prime rate for variable rate mortgages will likely increase by 1% as well to 4.70%.
Fixed-rate mortgage holders will see no change to their rates.
If you have a variable rate mortgage you might consider locking in to a fixed rate. This latest Bank of Canada announcement doesn’t directly change fixed rate mortgages but if you are not aware, they have been rising over the last month or two as well.
I, as well as many economists, are surprised by the 100 bps increase as expectations were for 75 bps, and understand it may come as a surprise to you as well. I encourage you to reach out so we can discuss your personal situation.
Why did this have to happen? Check out my blog post here.
Get the full Press Conference here.
