Last week the Bank of Canada announced that it would hike its policy interest rate to 3.25%, the highest it’s been since the days prior to the 2008 financial crisis.
While this bump of 75 basis points was widely-anticipated and thus hardly much of a surprise, it was the Bank’s forecast that smacked-down any optimism that we might soon see them start to ease off in their battle against inflation. Far from it, instead it would seem that they’re only getting started:
From our newsroom to your inbox at noon, the latest headlines, stories, opinion and photos from the Toronto Sun.
A welcome email is on its way. If you don’t see it, please check your junk folder.
The next issue of Your Midday Sun will soon be in your inbox.
We encountered an issue signing you up. Please try again
“The Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target.”
In sum: the Bank is steering us directly into the eye of the storm in hopes that we can make it through to the calm waters on the other side quickly.
What this will mean for debt-riddled Canadians is a whole separate conversation. Far from just affecting homeowners carrying sizable variable rate mortgages and home equity lines of credit, increased rates will impact consumer debt like student loan payments, car loans and credit cards and will be felt broadly.
While we knew that the rock-bottom rates would not and could not last forever, no one expected that rates would go this high, this fast.
From historic lows to 2008-levels in just six months. A complete 180 from 2020 Tiff Macklem who all but promised low rates through 2023, “ We want to be very clear —Canadians can be confident that borrowing costs are going to remain very low for a long time”
So what happens now?
Well, the Office of the Superintendent of Financial Institutions says nothing. In response to calls from realtors to ease up on the stress test and underwriting rules as borrowers butt up against these rising rates, we should not expect any softening of lending standards. Credit will be harder to come by, full stop.
Which is of course now the point. Curbing demand by tightening credit. After all, inflation won’t beat back itself.
But no longer is it just the over-leveraged that need take note. Even the people who won’t be wholly rocked by this are going to be feeling it. If you have a mortgage coming up for renewal, your car lease is nearing completion, or you’re a small business that relies on credit to float your inventory, you will feel the impact of these new rates almost immediately.
And with Statistics Canada reporting on Friday that Canada lost 40,000 jobs in the month of August bringing the three month jobless total to 100,000, it’s hard to imagine that the cracks won’t appear sooner than the Bank is hoping.
So yes, we should absolutely believe that the Bank of Canada is committed to their current course. But if recent history is any indication, things can shift on a dime and we’ve already seen that scrambling to catch up is the name of their game.
On Twitter: @brynnlackie
Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.
365 Bloor Street East, Toronto, Ontario, M4W 3L4
© 2022 Toronto Sun, a division of Postmedia Network Inc. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.