The Bank of Canada’s aggressive one per cent rate increase on Wednesday caught many by surprise and will likely have a considerable financial impact for many Canadians, says one economist.
“It’s going to have an immediate, pretty dramatic effect on a lot of people’s borrowing costs,” Stephen Brown, senior Canada economist at Capital Economics, told CTV’s Your Morning on Thursday.Most economists had expected an already-hefty 75 basis point move. However, the jump to 2.5 per cent from 1.5 per cent is the largest single increase by the central bank since 1998 and the fourth hike this year. Yet the bank has made it clear it’s not done.
There are already concerns that soaring interest rates could drive the country into a recession, but most economists have said the bank has few other options to quickly tame soaring inflation. One sector seeing a significant impact from the rate hikes is the housing market. Average housing prices have already fallen dramatically since April and the Canadian Housing and Mortgage Corporation is expecting the market to decline 3.5 per cent overall, with some forecasters predicting a steeper plunge of up to 20 per cent.“[It’s] in part a reflection of just how incredible the gains were over the past year,” Brown said.
”I just think given the rise in mortgage rates that we’re seeing, further upward pressure on interest rates, it’s very likely we’re going to see further falls in house prices,” Brown said. Shehata said it is too late to consider reselling because he cannot guarantee he will be able to sell the condo for the price he paid. On the other hand, he says his friends have seen their rent increase dramatically as well.
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