403-681-4376
8AM - 5PM Mon - Fri
103E – 1144 29th Ave NE
Mark Herman – Calgary Mortgage Broker

Rates Increasing: How Much? & How Fast?

April 26, 2022 Bank rates, Canadian mortgage, economy, Finance

With interest rates now on the rise, 2 Questions: How much? & How fast?

Summary:

  • Rates are up by 1.45% on the Variable already (Prime was 1.75% and is now 3.2%)
    • There HAS BEEN a 1 x .25% increase and 1 x .5% increase so far = .75% so far
  • Expected increases are 1 x .5% or .75%, and 1 x .25% still to come.
    • so expect Prime to get to 3.95% from 3.20% today, April 25th.

 

  • Insured variable rates are at Prime – 0.95% = 3.2 – .95% = 2.25% today
  • and they are expected to increase to 3.95% – .95% = 3.00% and then hold and decrease in the Fall of 2022.
  • these rates are lower than the current 5-year fixed rates of about 4% and are expected to come down in the Fall, 2022.

DETAILS:

Traditionally the Bank of Canada has used 0.25% as the standard increment for any interest rate move up, or down.  Occasionally the Bank will move its trendsetting Policy Rate by .50%, as it did at its last setting on April 13.

The last time the central bank boosted the, so-called, overnight rate by ½% was 20 years ago.  Now the Bank seems to be laying the ground work for an even bigger increase of .75% at its next setting in June.  There has not been a three-quarter point increase since the late 1990s.

Inflation remains the key concern for the BoC.  In March the inflation rate hit 6.7%, a 30-year high.  The central bank wants to see inflation at around 2.0%.  But it does not expect that to happen until sometime late next year.

Bank of Canada Governor will “not rule anything out” when it comes to interest rates and taming inflation. “We’re prepared to be as forceful as needed and I’m really going to let those words speak for themselves.”

While higher inflation was not unexpected as the economy recovered from the pandemic, it is lingering longer than anticipated.  The Bank says this is largely due to:

  • on-going waves of COVID-19, particularly in China, that have disrupted manufacturing and the supply chain;
  • the Russian invasion of Ukraine; and
  • spending fuelled by those rock-bottom interest rates that were designed to keep the economy moving during the pandemic.

The Bank is thought to be aiming for a Policy Rate of between 2% and 3%.  That is considered a “neutral” rate that neither stimulates nor restrains the economy. 

At the current pace, that could be reached by the fall of 2022.

, , ,