Bank of Canada raises policy rate by 25 bps to 4.5%

General Mitchell Goode 25 Jan

No Surprises Here: The Bank of Canada Hiked Rates By Only 25 bps, Signalling a Pause
As expected, the Bank of Canada–satisfied with the sharp decline in recent inflation pressure–raised the policy rate by only 25 bps to 4.5%. Forecasting that inflation will return to roughly 3.0% later this year and to the target of 2% in 2024 is subject to considerable uncertainty.

The Bank acknowledges that recent economic growth in Canada has been stronger than expected, and the economy remains in excess demand. Labour markets are still tight, and the unemployment rate is at historic lows. “However, there is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Consumption growth has moderated from the first half of 2022 and housing market activity has declined substantially. As the effects of interest rate increases continue to work through the economy, spending on consumer services and business investment is expected to slow. Meanwhile, weaker foreign demand will likely weigh on exports. This overall slowdown in activity will allow supply to catch up with demand.”

The report says, “Canada’s economy grew by 3.6% in 2022, slightly stronger than was projected in October. Growth is expected to stall through the middle of 2023, picking up later in the year. The Bank expects GDP growth of about 1% in 2023 and about 2% in 2024, little changed from the October outlook. This is consistent with the Bank’s expectation of a soft landing in the economy. Inflation has declined from 8.1% in June to 6.3% in December, reflecting lower gasoline prices and, more recently, moderating prices for durable goods.”

Short-term inflation expectations remain elevated. Year-over-year measures of core inflation are still around 5%, but 3-month measures of core inflation have come down, suggesting that core inflation has peaked.
The BoC says, “Inflation is projected to come down significantly this year. Lower energy prices, improvements in global supply conditions, and the effects of higher interest rates on demand are expected to bring CPI inflation down to around 3% in the middle of this year and back to the 2% target in 2024.” (the emphasis is mine.)

The Bank will continue its policy of quantitative tightening, another restrictive measure. The Governing Council expects to hold the policy rate at 4.5% while it assesses the cumulative impact of the eight rate hikes in the past year. They then say, “Governing Council is prepared to increase the policy rate further if needed to return inflation to the 2% target, and remains resolute in its commitment to restoring price stability for Canadians.”

Bottom Line

The Bank of Canada was the first major central bank to tighten this cycle, and now it is the first to announce a pause and assert they expect inflation to fall to 3% by mid-year and 2% in 2024.

No rate hike is likely on March 8 or April 12. This may lead many to believe that rates have peaked so buyers might tiptoe back into the housing market. This is not what the Bank of Canada would like to see. Hence OSFI might tighten the regulatory screws a bit when the April 14 comment period is over.

 

Article From: https://dominionlending.ca/economic-insights/bank-of-canada-raises-policy-rate-by-25-bps-to-4-5

 

Post-Holiday Debt? Consolidate Today!

General Mitchell Goode 9 Jan

The holidays are a season of giving and often times, households can often find themselves carrying some extra debt as we enter the New Year.

If you happen to be someone currently struggling with some post-holiday debt, that’s okay! Whether you’ve accumulated multiple points of debt from credit cards or are dealing with other loans (such as car loans, personal loans, etc.), you are likely looking for a way to simplify your payments – and reduce them. Rolling them into your mortgage could be the perfect solution.

Consolidating other forms of debt into your mortgage has multiple benefits. For starters, this process can help you to pay off your loans over a longer period of time with smaller payments per month, and often at a reduced interest rate when compared to a credit card.

By freeing yourself from these high interest rates and gouging interest payments, you will not only have more money each month but have a better chance of taking back your financial control and getting your loans completely paid off!

If you’re still not sure if this is the right solution for you, here is an example… if you have $30,000 of credit card debt, you are probably paying AT LEAST $600 per month and $500 per month of that is likely going directly to interest. If you let me help you to roll that debt into your home equity and monthly mortgage, your payment to this $30,000 portion would drop down around $175 per month, with interest charges closer to $140 per month. That is huge savings!

Not only does debt consolidation into your mortgage help with reducing interest charges and making your loan more manageable, but it is also much easier to keep track of and pay a single monthly installment versus managing a dozen different loans or bills.

While debt consolidation through refinancing will increase your mortgage since you have to add the debt into your existing mortgage amount, the benefits to lowering your overall payments and management can be well worth it when it comes to cost savings, time and stress. Keep in mind, you need at least 20 percent equity in your home to qualify for this adjustment.

If you are looking for a way to simplify (or get out of) debt, reach out to a Dominion Lending Centres mortgage expert! They would be happy to take a look at your financial portfolio and current mortgage and help you come up with the best option to suit your needs.

Article From: https://dominionlending.ca/life-style/post-holiday-debt-consolidate-today