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The Bank of Canada raised its benchmark interest rate on Wednesday for the first time since 2018, saying Russia’s invasion of Ukraine “is a major new source of uncertainty”

The Bank of Canada is poised to raise its benchmark interest rate on Wednesday for the first time since 2018.CHRIS WATTIE/Reuters

The Bank of Canada raised its benchmark interest rate on Wednesday for the first time since 2018. Here are the latest updates:

  • The Bank of Canada raised its benchmark interest rate to 0.50 per cent from 0.25 per cent for the first time since 2018, saying Russia’s invasion of Ukraine “is a major new source of uncertainty.”
  • The Bank of Canada’s decision is not expected to cool the country’s frenzied real estate market. Economists said it will take multiple interest rate increases before borrowing costs rise meaningfully.
  • The U.S. Federal Reserve may also move forward with plans to raise interest rates this month despite the “uncertain” impact of the Russia-Ukraine war, chair Jerome Powell said on Wednesday.
  • What happens as we move away from “what could be the lowest borrowing costs we’ll see in our lives”? The Globe’s Rob Carrick shares a realist’s guide to the winners and losers in the wave of interest rate hikes that just began.
  • A rate hike will affect the cost of borrowing for various loans, including mortgages. What does that mean for homeowners and prospective buyers? Here is a guide on what to expect.

8:59 p.m. ET

The crisis in Ukraine is pulling monetary policy in multiple directions

In finally launching a cycle of interest rate increases, the Bank of Canada all but admitted that the move was overdue. But with the war in Ukraine pulling monetary policy in opposite directions, there’s still a hint of hesitation in the central bank’s words.

Today, Bank of Canada Governor Tiff Macklem and senior deputy Carolyn Rogers face inflation of 5.1 per cent, a three-decade high – and it’s likely headed higher before it turns lower. The Canadian economy has fully recovered from the COVID-19 recession much faster than the bank had anticipated. The combination has made rate hikes both inevitable and essential – not just the single increase announced Wednesday, but, in all likelihood, a series of increases over the next year or more.

And, frankly, it looks as if the Bank of Canada arrived late to its own party, writes The Globe’s David Parkinson.

- David Parkinson


6:38 p.m. ET

Mortgage rundown: The prime rate has started climbing. Where it stops, no one knows

Borrowers all want to know the same thing – where does this end? Canada, and the world, is in largely uncharted territory. Not even Canada’s central bank knows how high prime rate could go, as its off-base forecasts clearly demonstrate.

Robert McLister, an interest rate analyst and mortgage strategist, writes that as flawed as market expectations may be, this is not the time to ignore them – not if you’re a borrower living paycheque to paycheque anyway.

- Robert McLister


3:12 p.m. ET

Major Canadian banks raise prime rate in link with Bank of Canada

RBC and TD Bank both announced they’d raise their prime interest rate by 25 basis points after the Bank of Canada’s announcement this morning.

This raises their prime rates to 2.70 from 2.45 per cent, effective March 3.

Other banks are expected to follow with rate increases as well.

- The Canadian Press


11:37 a.m. ET

Canadian dollar leads G10 gains as interest rate hike cycle gets going

The Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil prices surged and the Bank of Canada hiked interest rates as expected for the first time since October 2018 despite the crisis in Ukraine.

“The announcement sets the stage for more rate hikes this year,” said Ryan Brecht, senior economist, North America, for Action Economics.

Money markets expect the central bank to hike again in April and about six times in total this year.

The Canadian dollar was trading 0.5 per cent higher at 1.2675 to the greenback, or 78.90 U.S. cents, the biggest gain among G10 currencies. It traded in a range of 1.2665 to 1.2744.

- Reuters


11:11 a.m. ET

Canada will need multiple rate increases to cool housing market frenzy

Houses are seen on Squamish Nation land in North Vancouver, on Tuesday, February 22, 2022. The Bank of Canada’s decision to raise interest rates on Wednesday is not expected to cool the country’s frenzied real estate market, top economists say.DARRYL DYCK/The Canadian Press

The Bank of Canada’s decision to raise interest rates on Wednesday is not expected to cool the country’s frenzied real estate market, with homebuyers still able to get cheap mortgages to compete for properties.

Economists said it will take multiple interest rate increases - not just Wednesday’s 25 basis point increase to 0.5 per cent - before borrowing costs rise meaningfully. (A basis point is a one-hundredth of a percentage point.)

“I don’t think 25 basis points alone would have much of an impact on the housing market. It will take a series of rate increases to achieve that,” said Jean-François Perrault, chief economist with Bank of Nova Scotia.

Since the COVID-19 pandemic started, home prices have climbed at a record pace with home buyers looking for roomy properties in the suburbs and smaller cities where home prices are somewhat cheaper. The typical price of a home across the country jumped 28 per cent to $836,300 in January compared with a year earlier, according to the Canadian Real Estate Association’s home price index, which adjusts for pricing volatility.

- Rachelle Younglai


10:16 a.m. ET

A realist’s guide to winners and losers in the wave of interest rate hikes that just began

The new normal is rising interest rates.

The first step up for rates from the emergency low of the pandemic has been taken by the Bank of Canada and more increases are ahead. The Globe’s personal finance columnist shares a realist’s take on who’s better and worse off as we adjust to the move away from what could be the lowest borrowing costs we’ll see in our lives.

- Rob Carrick


10:02 a.m. ET

Bank of Canada raises interest rates to 0.5 per cent, pushing borrowing costs up for first time since 2018

The Bank of Canada raised its policy interest rate Wednesday, pushing up borrowing costs for the first time since 2018 and kicking off a much-anticipated rate hike cycle despite heightened economic uncertainty caused by Russia’s invasion of Ukraine.

The central bank’s governing council voted to increase the key overnight interest rate to 0.5 per cent from 0.25 per cent – the first step in a push to bring runaway inflation back under control.

Bank governor Tiff Macklem and his team decided to proceed with the rate increase despite significant disruptions to the global economy resulting from the war in Ukraine and the massive sanctions levelled by Western governments against Russia in recent days, saying the invasion is “a major new source of uncertainty” in its rate announcement:

The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth.

The central bank’s decision to start tightening monetary policy comes in response to the highest inflation in decades, which has eroded the purchasing power of the Canadian dollar and challenged the central bank’s credibility as an inflation fighter.

The rate of inflation hit a three-decade high of 5.1 per cent in January, and consumer price index growth has exceeded the central bank’s 1 per cent to 3 per cent target range since April of last year. The bank warned on Wednesday that price increases have become more pervasive, and said that inflation “is now expected to be higher in the near term than projected in January.”

Changing predictions

The Bank of Canada publishes new economic projections every quarter in its Monetary Policy Report (MPR). Here are the changing inflation projections from MPRs over the past year.

Projections of annual CPI inflation, by MPR, %

Jan. 2021

report

April 2021

report

July 2021

report

Oct. 2021

report

Jan. 2022

report

4.5%

4.0

3.5

3.0

2.5

2.0

1.5

Bank of Canada inflation rate target: 2%

1.0

0.5

0.0

2021

2022

2023

the globe and mail, Source: bank of canada

Changing predictions

The Bank of Canada publishes new economic projections every quarter in its Monetary Policy Report (MPR). Here are the changing inflation projections from MPRs over the past year.

Projections of annual CPI inflation, by MPR, %

Jan. 2021

report

April 2021

report

July 2021

report

Oct. 2021

report

Jan. 2022

report

4.5%

4.0

3.5

3.0

2.5

2.0

1.5

Bank of Canada inflation rate target: 2%

1.0

0.5

0.0

2021

2022

2023

the globe and mail, Source: bank of canada

Changing predictions

The Bank of Canada publishes new economic projections every quarter in its Monetary Policy Report (MPR). Here are the changing inflation projections from MPRs over the past year.

Projections of annual CPI inflation, by MPR, %

Jan. 2021

report

April 2021

report

July 2021

report

Oct. 2021

report

Jan. 2022

report

4.5%

4.0

3.5

3.0

2.5

2.0

1.5

Bank of Canada inflation rate target: 2%

1.0

0.5

0.0

2021

2022

2023

the globe and mail, Source: bank of canada

That January forecast saw the rate of inflation remaining close to 5 per cent until the middle of the year, then declining to close to 3 per cent by the end of the year.

- Mark Rendell


9:36 a.m. ET

Powell backs 25-basis-point interest rate hike this month, says U.S. Federal Reserve ready to be more aggressive

The impact of the conflict in Ukraine on the US economy is "highly uncertain," and the central bank will need to adjust quickly to ensure the post-pandemic recovery continues, US Federal Reserve Chairman, Jerome Powell said Wednesday.STEFANI REYNOLDS/AFP/Getty Images

Federal Reserve Chair Jerome Powell said on Wednesday he was “inclined to propose and support a 25-basis-point rate hike” at the U.S. central bank’s policy meeting this month but would be “prepared to move more aggressively” if inflation does not abate as fast as expected.

In remarks framed by the war in Ukraine, Powell told the U.S. House of Representatives Financial Services Committee that the economic outlook had become “highly uncertain,” and that the Fed wanted to “proceed carefully” as it shifts monetary policy in an already complicated situation.

But while his comments about the March 15-16 meeting put to rest debate over the Fed’s initial step in tightening policy, Powell said that does not mean the central bank won’t move faster at a later time.

“We will proceed carefully as we learn more about the implications of the Ukraine war on the economy,” Powell said in his testimony. “We have an expectation that inflation will peak and begin to come down this year. To the extent inflation comes in higher or is more persistently high … we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”

The Fed has maintained its benchmark overnight interest rate near zero since slashing it in 2020 to bolster the economy from the impact of the coronavirus pandemic.

- Reuters


8:19 a.m. ET

Why ‘Canadian households can fully handle a series of rate hikes at this point’: BMO

A senior economist at Bank of Montreal (BMO) argues that Canadians are financially well prepared for the Bank of Canada interest rate hikes:

“On the eve of Bank of Canada rate hikes, a look at household savings suggest they are more than ready. Households have accumulated roughly $300 bln in excess savings through the pandemic above and beyond what would have otherwise been normal. Think of it another way: Canadians have banked an additional 8 years worth of savings through this episode. Why? Employment income surged back quickly; extremely supportive federal transfers more than offset the temporary decline in employment income, and ran well past the recovery; and Canadians simply haven’t been able to spend as much in areas like travel and services. Suffice it to say, Canadian households can fully handle a series of rate hikes at this point.”

- Robert Kavcic, BMO senior economist


The Bank of Canada just raised interest rates. Here’s what it means for your finances and the economy

Why is the Bank of Canada hiking its interest rate? There is a danger lurking: inflation. The country’s annual inflation rate recently hit a 30-year high of 5.1 per cent. And that’s where the Bank of Canada comes in: Its primary goal in setting interest rates is to keep inflation around 2 per cent, with some wiggle room on either side.

The bank has largely chalked up higher inflation to temporary factors that are pushing up prices, such as supply disruptions. But there are signs that steeper inflation is at risk of becoming entrenched – hence why the bank needs to act now.

So, what does a Bank of Canada rate hike mean for your finances and the Canadian economy? The Globe’s Matt Lundy shares the implications of that pending move.

- Matt Lundy


What analysts are saying about the Bank of Canada interest rate

“The recent market gyrations and geopolitical uncertainty have driven the market to price some odds that the BoC could hold their fire today, but we don’t believe the impact is sufficient at present to alter the course of near-term policy. Inflation is well above the BoC’s 2% target, the output gap is more or less closed, and the housing market is on fire, all reinforcing the necessity of higher rates to keep inflation from accelerating even further. Yesterday’s strong Q4 GDP growth figure and surprisingly positive start to 2022 should make the BoC all the more comfortable with pushing rates higher today.

- Benjamin Reitzes, managing director, Cdn rates & macro strategist, Bank of Montreal

Rate lift off from the Bank of Canada is widely expected this morning. While market expectations around today’s policy decision have faded slightly (and longer run expectations have been pared back more significantly following the past week’s events), there is unanimity among economists in the Bloomberg survey—all 27 expect the Bank to tighten 25bps. This is a policy statement only meeting; Governor Macklem provides more colour around policy thinking tomorrow with the Economic Progress Report and press conference. However, today’s statement could provide some context on the outlook for policy moving forward, with a clear warning that further hikes are likely to follow quickly, and that the Bank’s balance sheet is poised to shrink fairly quickly from here. A rate hike is largely factored into the CAD at this point but hawkish language should provide it with a lift—the more so against the likes of the EUR, AUD, and JPY where policy settings are liable to remain accommodative for some time to come.

- Shaun Osborne, chief FX strategist with Scotiabank

“The BoC lifted its policy rate for the first time since 2018, having kept it near zero for nearly two years of the pandemic. The Russian invasion of Ukraine was noted as a major new source of uncertainty, but after a close call not to hike in January, there appeared to be a low bar to raise rates today and recent data easily cleared it. While January’s jobs numbers were disappointing (200,000 jobs lost, unemployment rate +0.5 ppts) the labour market has bounced back quickly from past waves of COVID-19, and falling case counts and easing restrictions suggest the post-Omicron rebound should be equally robust.”

- Josh Nye, RBC senior economist


Mar. 1, 1:52 p.m. ET

Canadian economy grew through Omicron wave, boosting chance of Bank of Canada rate hike Wednesday

Phil Gintoli, owner of at Ponesse Foods in Toronto’s St. Lawrence Market, chats with a customer on Jan 19, 2022. Inflation has increased the price of groceries with foods such as grapes and mushrooms going up in price, alongside other grocery items.Fred Lum/the Globe and Mail

The Canadian economy continued to grow through the Omicron wave of the COVID-19 pandemic, beating analyst expectations and increasing the likelihood that the Bank of Canada will raise interest rates on Wednesday for the first time since 2018.

Despite another round of health restrictions, preliminary estimates show that Canada’s GDP grew by 0.2 per cent month-over-month in January, Statistics Canada said Tuesday. While economic growth slowed in December, the Canadian economy ended last year on a solid footing, with GDP growing 6.7 per cent on an annualized basis in the fourth quarter.

Russia’s invasion of Ukraine adds uncertainty to the global economic outlook, making it harder for central bankers to make monetary policy decisions. From a Canadian perspective, however, the war is likely to add to inflationary pressures as global energy price spike. It also could further drive GDP gains as Canada’s energy and commodity sectors benefit from higher prices.

The annual rate of consumer price growth in Canada hit 5.1 per cent in January. The central bank’s most recent forecast, from January, projects that inflation will remain close to 5 per cent until the middle of the year before declining to around 3 per cent by the end of the year.

- Mark Rendell


Feb. 28, 1:45 p.m. ET

How Bank of Canada interest rate hikes will affect your mortgage

The Bank of Canada is poised to raise its benchmark interest rate on Wednesday for the first time since 2018, a move that will affect the cost of borrowing for various loans, including mortgages.

Since the early days of the pandemic, the bank’s benchmark rate has stood at 0.25 per cent.

Those ultralow rates have undoubtedly poured fuel on the housing market, which has experienced frenzied activity and rapidly increasing prices for much of the past two years, despite economic troubles.

Now, things are changing, with a series or rate hikes expected this year and next.

How will it affect fixed-rated mortgages? How will your mortgage payments change? What does it mean for first-time homebuyers? Here is a guide (and calculator) to how the rate hike will affect homeowners and prospective buyers.

Current monthly payment ($)(add this if you want to calculate the difference)
Mortgage amount at renewal ($)
Amortization period at renewal (years)
Interest Rate (%)
Monthly cost would be:

- Matt Lundy, Rob Carrick, Jeremy Agius


Mortgages 101: What’s a mortgage and how to choose between fixed and variable rates in Canada?

Illustration by Melanie Lambrick

Selecting a mortgage is one of the biggest – and most stressful – financial decision made by many Canadians. But a clear understanding of a few basic terms and concepts can help allay some the anxiety. Here’s a primer on the basics of mortgages, along with insights into the current market.


Feb. 21, 4:06 p.m. ET

The Bank of Canada is ready to raise interest rates. How high could they go?

After months of blistering inflation, economists and investors are betting the Bank of Canada will start raising interest rates on March 2, kicking off a brisk rate hike cycle that could see borrowing costs return to pre-COVID-19 levels or surpass them some time next year.

Central bank officials have said they may need to move forcefully to tamp down inflation expectations, which are at risk of becoming unmoored the longer consumer price growth remains high. That doesn’t mean Governor Tiff Macklem and his team are preparing to push interest rates up into double digits, as central bankers did in the early 1980s to bring spiralling inflation back under control.

“We’re not talking about 18 per cent interest rates to cool the economy,” said Royce Mendes, head of macro strategy at Desjardins.

“We can look back at the last cycle [in 2017 and 2018], and realize that when rates got to 1.75 per cent, we could see clear signs in the housing market and in the durable goods market that higher interest rates were taking a toll. So that provides a rough guide,” he said.

Mark Rendell


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