In a recent decision, the Bank of Canada has chosen to increase its benchmark interest rate to 4.75 percent. This marks the first time since January that the country’s central bank has raised this key rate. Previously, the bank had indicated that it would pause its aggressive campaign of rate hikes to evaluate if it had successfully addressed inflation concerns.

However, the Canadian economy has proven to be unexpectedly resilient, surpassing growth expectations. Furthermore, after nine consecutive months of decline, the inflation rate unexpectedly rose last month.

By raising the rate from 4.5 percent to 4.75 percent, the Bank of Canada has reached its highest level since 2001. While some investors and economists had considered the possibility of a rate increase, the decision came as a surprise to those who believed it would happen later in the year. As a result, observers are now more inclined to believe that additional rate hikes may be on the horizon.

Trading in swaps, a type of investment, has already factored in at least one more rate increase by the end of the year. There is even speculation that the rate could potentially surpass 5.25 percent in the future.

Unfortunately, this decision by the central bank will lead to increased expenses for individuals with variable rate mortgages. Many of them have already experienced significant payment increases this year. In fact, the rate hikes that have been announced so far have raised the monthly payment on a $500,000 mortgage by approximately $1,100. This calculation does not account for the recent rate increase.

Read more about the increase here:

• Bank of Canada – https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
• CBC – https://www.cbc.ca/news/business/bank-of-canada-rate-decision-1.6868206
• Globe and Mail – https://www.theglobeandmail.com/business/article-live-updates-bank-of-canada-interest-rate/

Original photo by Karolina Grabowska (modified)