The Bank of Canada announced an increase to its key interest rate on Wednesday morning.
As expected by many, its interest rate was increased by 25 basis points, boosting it from 4.25 per cent to 4.5 per cent.
Today’s increase marks the highest that the rate has been since 2007, and is the central bank’s eighth increase in a row since March.
The bank says it is assessing the impact of interest hikes on the economy and monitoring the effects on spending over the forthcoming months. If inflation holds steady, the bank forecasts a pause at the current rate.
“Labour markets are still tight: the unemployment rate is near historic lows and businesses are reporting on going difficulty finding workers. However, there is growing evidence that restrictive monetary policy is slowing activity, especially household spending,” the Bank of Canada said in a press release on Wednesday.
According to the bank’s monetary policy, steady declines in inflation are evident in the lowered pricing for gasoline and durable goods, due to improvements in global supply chains and a recovery of shipping costs to pre-pandemic levels.
This year, the bank expects house prices to continue declining, despite Canadians using a higher portion of their disposable income for mortgage costs.
“If you go back to last spring and early summer, we saw [home] prices decline in the Greater Toronto Area based on the fact that the rates have begun to rise,” Karen Yolevski, chief operating officer at Royal LePage Real Estate Services Ltd., tells Now Toronto. “But what we have seen in the GTA since about August of last year, is that the average price of a home has stabilized.”
If you are looking to venture into homeownership, Yolevski suggests working with a financial professional to get pre-approved.
”We know that in the GTA we still don’t have a tremendous amount of inventory. There are properties to look at and we’ve seen that it’s taking a bit longer for those properties to sell. So you have a little more time to investigate the properties you’re interested in, put together your offer and complete your inspections,” she said.
Currently, the inflation rate is at 6.3 per cent and economists project a three-per cent decline by mid-2023, with an expected target of two per cent by the new year.
The next policy rate announcement is scheduled for March 8.
