Bank of Canada Decides to End Pause in Interest Rate Hike:
It is not a secret that the Bank of Canada did continuous interest rate hikes last year, 2022, in the fight against inflation. Last March 2023, the Bank of Canada decided to pause the interest rate hike ending the eight consecutive increases.
Today, June 7, 2023, the Bank of Canada announced to increase their policy interest rate by 25 basis points, which makes the policy interest rate at 4.75% from 4.50%.
Canada’s economy is stronger than expected in the first quarters of 2023, with a GDP growth of 3.1%. CPI inflation increased by 4.4% in April, the first increase in 10 months.
The bank is still predicting that CPI inflation will decline to roughly 3% in the summer as decreased energy costs take hold and last year’s significant price increases disappear from the annual data.
The Bank of Canada’s decision to raise interest rates has several implications for Canadians. Higher interest rates will make it more expensive to borrow money, which could lead to a slowdown in the housing market and other sectors of the economy. However, higher interest rates could also bring inflation under control.
What Does Interest Rate Hike Means to You?
You should expect an increase in monthly payments if you have a variable-rate mortgage. This is because your mortgage’s interest rate will increase with the main interest rate set by the Bank of Canada.
Before interest rates rise further, consider locking in a fixed-rate mortgage if you intend to purchase a home.
Your monthly payments can increase if you have other debts, such as credit card debt or a car loan. This is because these debts’ interest rates will likewise rise. If you are having trouble making your payments, you should speak with your creditors to see if they can provide you with a payment arrangement or a lower interest rate.
A decline in the economy could also result from higher interest rates. This could indicate that it’s more difficult for you to find employment or that your wages don’t rise as much as they might have if interest rates had remained low.
Raising interest rates by the Bank of Canada is likely to have various effects on Canadians. It’s critical to comprehend how these modifications will influence you and to take precautions to safeguard your funds.
The Bank of Canada
The evolution of excess demand, inflation expectations, wage growth, and corporate pricing will all be examined by the Bank of Canada to determine whether or not the inflation target can be met.
To ensure that these variables align with the inflation objective moving ahead, the Bank of Canada’s Governing Council will concentrate primarily on inflation expectations, wage growth, corporate pricing, and surplus demand.
Tips on Managing Your Finances During Interest Rate Hike:
1. Make a budget plan and make sure that you track your spending. Saving money during this time is crucial because you’ll never know what might happen in the next months. Solid financial planning is the best way to cope with increasing interest rates.
2. Ensure you prioritize paying higher interest, like your credit card debt. Getting rid of those debts will give you more peace of mind.
3. Consider consolidating high-interest debts into single, lower-interest loans.
4. Save up money for rainy seasons.
5. Make sure to have emergency funds. You can use emergency funds to ensure you can still pay off debts or loans even if the interest rate hikes.
The Bank of Canada’s raising interest rates means they want to slow inflation and stabilize the economy. They believe the economy is doing well, but this could make it more expensive for people to borrow money and might affect investment and overall growth.
The next announcement will be on July 12, 2023. The Bank will simultaneously release its next comprehensive view of the economy and inflation in the Monetary Policy Report and any risks to the prediction.