The Bank of Canada raised its benchmark interest rate by 50 basis points on Wednesday, to 4.25 per cent.
The move was widely expected by economists, who were anticipating a rate hike of either 25 or 50 points.
Canada's central bank has raised its rate seven times this year in its fight to wrestle inflation into submission. In the process, the bank has taken its rate from functionally zero to its highest point since 2008 — its fastest pace of rate hikes since inflation targeting began in the 1990s.
Those rate hikes have had a huge impact on the rates that Canadian consumers and businesses get from their banks on things like savings accounts and mortgages.
Canada's five biggest banks moved swiftly to match the bank's increase, raising their prime lending rates by the same 50 basis points. The prime lending rate at all of Canada's major lenders will now be 6.45 per cent as of Thursday morning. That will increase borrowing costs for anyone with a variable rate loan.
In previous rate hikes this year, the bank made it clear that it would continue to raise its trend-setting rate until inflation came back to within the range of up to three per cent that it likes to see.
Even after announcing its biggest rate hike ever — a full percentage point — in July, the bank was saying it "continues to judge that interest rates will need to rise further."
But Wednesday's statement accompanying the rate decision was a clear departure from that tone, as the language shifted to a more neutral, wait-and-see approach — and a clear suggesting the bank may be getting ready to stand on the sidelines for a while.
In its statement on Wednesday, the bank says it "will be considering" whether or not the rate has to go higher in order to bring supply and demand back into balance and return inflation to target.
For economist Royce Mendes at Desjardins, that's a clear pivot. "Upcoming readings on the labour market, inflation and the central bank's own surveys will dictate whether there's more to come," he said. "We now expect central bankers to officially communicate a pause at their January announcement, when they will have a fresh set of forecasts in hand."
Stephen Brown, an economist with Capital Economics, is also among those who thinks the bank is getting ready to shift into neutral. "We would not rule out a final 25 basis point interest rate hike in January, but the Bank is very close to the end of its tightening cycle," he said in a note to clients on Wednesday.
Trading in investments known as swaps that bet on the bank's future policy moves imply the market thinks there might be one more small rate hike of 25 basis points in the new year, before the bank changes direction and has to cut its rate at least once in 2023
Stopping the barrage of rate hikes is long overdue for people like Rabia Shumayal. She and her husband bought a home in Mississauga, Ont., during the pandemic, a decision she says she has since come to regret because of the rapid escalation in her mortgage costs.
"If they keep increasing the interest rate at this rate, I don't know how I'm going to afford [my mortage] bill," she told CBC News in an interview.
On the advice of her mortgage broker and others, she opted for a variable rate loan.
Her initial rate was 1.92 per cent, which worked out to a mortgage payment of $1,700 a month — well within her family budget.
But even before Wednesday's hike, her mortgage rate has skyrocketed to 5.5 per cent and a monthly payment of $2,700. That thousand-dollar uptick gobbles up every spare cent the family has, and then some.
"My kids don't have any extracurriculars because I can't afford it," she said. "Every single penny is going toward the mortgage."
She bristles at suggestions that families can beat inflation by cutting back on expenses, such as the recent quip by federal Finance Minister Chrystia Freeland that families should consider cancelling their subscriptions to Disney+.
"I already don't have one of those things," Shumayal says. "And even if I had those, how would getting rid of $30 make up for $1,000 of an escalation of an interest rate?"
While she's glad to have a home for her children, she's angry that the bank seems committed to raising rates and punishing families like hers, despite the bank's infamous 2020 pledge that "interest rates are going to be low for a long time."
"I should punch myself for that decision," she says. "Why did I listen to all these people?"
Another homeowner, Torontonian Rebecca Cossar, told CBC News this week that while she has been relatively immune to effects from the rate hikes so far, that won't be the case starting in February when her mortgage is up for renewal.
She was fortunate enough to lock into a rate below two per cent in early 2021, but the options she's being presented with now are all above seven per cent.
"That's going to quadruple my mortgage costs every month," she says, "which means that everything that you pay in a month is just going to interest."
"You are just literally standing still. It's very depressing."
Calls for different approach
Homeowners themselves aren't the only ones thinking perhaps it's time for the bank to sit on the sidelines for a while as the economy digests the hikes that have already happened.
Bea Bruske, the head of the Canadian Labour Congress, says the Bank of Canada's policy decisions are being needlessly punitive, and lobbies for a softer approach.
"Central banks raise rates to cool the economy and lower inflation, but the Bank of Canada has gone further and has waged a public relations campaign warning about the phantom menace of higher wages," Bruske said Wednesday.
"There is simply no evidence of this," Bruske went on, noting that wages are still going up at a rate far lower than inflation.
"Meanwhile, corporate profits have ballooned to record levels. It is time for a more balanced policy approach."
SOURCE: Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, and Canadian Business Magazine. Twitter: @p_evans Email: firstname.lastname@example.org