The latest on the Bank of Canada's rate decision
The Bank of Canada raised its benchmark interest rate by 50 basis points, surprising markets with another oversized rate hike and signaling that it may be nearing the end of its historic rate-hike cycle.
This moves the central bank’s policy rate to 4.25 per cent from 3.75 per cent – the first time it has topped 4 per cent since early 2008.
Find live updates below.
- Bank of Canada deputy governor Sharon Kozicki will give a speech at 12:45 ET on Thursday. This will explain the governing council’s reasoning for the rate decision and lay out the central bank’s latest thinking on the economy. The speech will be followed by a news conference at 2 p.m. ET.
- The U.S. Federal Reserve’s next rate announcement is on Dec. 14. It is widely expected to increase the federal funds rate by another 50 basis points.
- Statistics Canada will publish November inflation data on Dec. 21.
- The Bank of Canada’s next rate decision is on Jan 25.
– Mark Rendell
What the BoC rate hike means for Canada’s economic growth
After a headlong dash to raise interest rates over the past nine months, the central bank is now in a more delicate phase of setting monetary policy. Interest rate changes take time to work through the economy, often six to eight quarters, and this lag poses the risk of overtightening.
The bank’s previous rate hikes are slamming the housing market. National sales were down 36 per cent year-over-year in October, and prices were down 10 per cent. But consumers are only just beginning to tighten their belts, with household spending falling just 0.3 per cent in the third quarter.
Expect this to accelerate in the coming months. “Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year,” the bank said in its rate statement. Its latest economic forecast from October shows near-zero growth for the next three quarters, putting the Canadian economy right on the edge of recession.
One area to watch is the labour market. Unemployment is near a record low, and job vacancies are high. But Governor Tiff Macklem warned in a speech last month that unemployment will need to rise to get inflation under control.
”It’s clear that the adjustment is not painless. Lower vacancies mean it could take longer to find a job, and some businesses will find that with less demand for their products, they don’t have enough work for all their workers,” Mr. Macklem said.
”As we watch to see how the economy is responding to higher interest rates, we expect that some parts of the economy will be more sensitive to higher borrowing costs and will slow earlier or more sharply. The response will be somewhat uneven. Some industries more than others will see fewer vacancies or even job losses,” he added.
– Mark Rendell
Opinion: How will interest rates affect GIC rates?
I know from reader e-mails that a lot of people expect Bank of Canada rate increases to be reflected in rates on guaranteed investment certificates. But GIC rates are influenced a lot by what’s happening in the bond market.
So what’s happening in bond land? Yields on bonds issued by the Government of Canada have been falling hard lately. So far, GIC rates have held up well. Five-per-cent returns on GICs with terms of one to five years were still widely available as of Wednesday, if you’re willing to deal with alternative banks, credit unions and trust companies. But these rates may not last, and it’s unlikely we will see higher rates ahead.
The reason bond yields are falling is that concern about inflation is fading. This view was reinforced by Bank of Canada comments suggesting we are close to the end of the current rising rate cycle.
It’s been a great run for GIC investors. If GICs work for your financial needs, snap up those 5-per-cent returns while you can.
Mortgage-holders, savers and GIC investors, read more about why it might be time to change your thinking on interest rates.
– Rob Carrick
Canada’s housing market expected to slow further after latest BoC hike
The country’s housing market is expected to slow further after today’s interest rate hike pushes borrowing costs up again.
Home sales are well below last year’s levels, and the typical home price across the country is 10 per cent lower than the peak prices seen in February.
We are also entering the holiday season, which historically has been the slowest period for residential real estate sales.
Even though home prices are relatively lower and there are no longer bidding wars, mortgages have become prohibitively expensive for would-be buyers.
”Although prices are lower and will become lower, the monthly costs for buyers keep getting higher and higher,” said Davelle Morrison, a broker with Bosley Real Estate Ltd., who sells homes in the Toronto region. “The higher borrowing costs are a huge factor for buyers right now.”
It’s the same story for variable-rate mortgage holders. These borrowers will face even more pressure to either increase their monthly payments or make a lump sum payment to stay on track with their mortgage terms.
That’s because the majority of variable-rate mortgage holders in Canada have static monthly payments.
With every interest-rate hike, more of these borrowers’ monthly payments will go toward interest and less toward the principal.
When their monthly payments only cover the interest, they will hit a triggering rate that often requires them to increase those payments.
As of the end of October, about half of these variable-rate mortgage holders had already reached their triggering rate, according to estimates from Bank of Canada research.
That research, which was published in November, estimated that another 50-basis-point increase in mortgage rates would push an additional 15 per cent of those variable-rate mortgage holders to their triggering rate.
Major lenders are expected to follow the Bank of Canada’s move and raise their prime lending rate, which guides variable-rate mortgages. The banks’ prime lending rate is currently 5.95 per cent.
Read our explainer to understand how the Bank of Canada’s interest rate hike affect variable-rate mortgages.
– Rachelle Younglai
Opinion: Maximizing returns on saving after today’s hike
If you’re looking to maximize returns on savings, today’s rate hike will help a little. Don’t expect much more from high-rate savings accounts, which currently top out in the 3 to 3.75-per-cent range. Here’s a good website for keeping track.
Where you should see an increase is in cash-equivalent exchange-traded funds, which hold their assets in big bank savings accounts with plus-size rates. Expect to see these ETFs with yields around 4.5 per cent after today’s Bank of Canada rate increase. You’ll find a list of cash-equivalent ETFs here – they’re very useful as a place to park uninvested cash in your investment accounts.
– Rob Carrick
Economists react to today’s Bank of Canada rate hike
Here is how some Bay Street economists reacted to Wednesday’s rate hike:
Avery Shenfeld, chief economist at CIBC Capital Markets: “As we expected, the bank lifted the overnight rate by 50 basis points to 4.25 per cent, but having previously concluded these messages by saying that rates ‘will need to rise further,’ it now says only that it will ‘be considering whether the policy interest rate needs to rise further.’ … While the tightening cycle likely has reached its zenith, we’ll need the pain of these higher rates to persist for a while to stall economic growth and thereby cool inflation.”
Stephen Brown, senior Canada economist at Capital Economics: “For now, we assume that the resilience of the labour market and a desire not to send too dovish a message will cause the bank to enact one final 25 [basis point] hike in January. But with Canadian oil prices tumbling below $50 in recent days, almost 40 per cent lower than the bank assumed in its October Monetary Policy Report, it would not be a complete surprise if today marks the last hike in this cycle.”
Royce Mendes, head of macro strategy at Desjardins Securities: “These monetary actions will work with a significant lag. Even so, there are many households feeling pain upfront, with roughly 60 per cent of all variable-rate mortgages set to hit their trigger rate after this latest hike.”
Read how more economists and market strategists are reacting to the move.
How BoC’s rate hike is affecting the bond market
TD Securities just published a report called December Bank of Canada Announcement: Stick a Fork In, They’re Done, indicating its belief that the Bank of Canada is done hiking rates for the near term. Bond yields are now higher on the day, however, which implies traders are not entirely in agreement with TD.
The two-year bond is up 3.5 basis points to 3.82 per cent and the five-year is almost flat, up a mere 0.011 per cent to 3.01 per cent.
Opinion: The end of BoC rate hikes is in sight
As I said in the column I wrote on today’s rate announcement, we are entering an endurance phase for borrowers. People with variable-rate mortgages, credit lines and floating rate loans were bombarded in 2022 with seven rate increases, worth a cumulative 4 percentage points. That’s massive.
There may be another modest-size rate hike in 2023, but we are very close to being done with rate hikes unless inflation regains momentum. Rate relief will take a while – maybe as much as a year. This is where the endurance theme enters the picture. If you have floating-rate debt, map out how you’ll make it through the months ahead.
The end for rate hikes is in sight, though.
Opinion: Is change afoot for the BoC?
A change is afoot. And it’s a big one.
In the all-important final paragraph of the Bank of Canada’s rate announcement, the bank dropped its long-standing declaration that “Governing Council expects that the policy interest rate will need to rise further.” It now says the “Governing Council will be considering whether the policy interest rate needs to rise further.”
That signals that Wednesday’s 50-basis-point hike in the bank’s policy rate may very well be the last of this cycle. It’s the news investors, businesses and consumers have been looking for, after seven consecutive rate hikes that have raised the key rate by a full four percentage points.
The choice of phrasing means this isn’t by any means a guarantee that the bank won’t have one more increase in its pocket – say, a quarter-point hike – at its next sitting in late January. The Governing Council is certainly keeping that as an option. But it has set the stage for the bank to halt rate hikes in the January decision or do so after one more increase.
– David Parkinson
How today’s Bank of Canada rate hike is affecting stock markets
Bond markets appeared largely unfazed by the Bank of Canada rate decision Wednesday. The 50-basis-point hike was expected, but the signal that the bank might pause this cycle of rate increases sent the two-year bond yield initially lower – from 3.81 per cent to 3.77 per cent, where it stabilized.
The five-year yield, one of the primary drivers of mortgage rates, was 3 per cent just ahead of the rate announcement and is now at 2.97 per cent.
The two-year traded as low as 2.71 per cent earlier in the session, and the five-year was 2.93 per cent at 9:30 a.m., so the post-announcement market moves are not major.
Bank of Canada delivers half-point rate hike
The Bank of Canada increased its benchmark interest rate by 50 basis points, capping off a tumultuous year with another oversized rate hike.
This moves the central bank’s policy rate to 4.25 per cent from 3.75 per cent – the first time it has topped 4 per cent since early 2008. Markets were expecting a smaller 25-basis-point move.
The bank has now increased interest rates seven times since March in a bid to get decades-high inflation under control.
Read more about today’s Bank of Canada interest rate hike.
– Mark Rendell
What to expect ahead of today’s BoC announcement
This is one of the four rate decisions each year that land between the central bank’s quarterly Monetary Policy Reports (MPR). As a result, it will be short and sweet. The announcement itself is typically about five or six paragraphs long, posted on the bank’s website at 10 a.m. ET; that’s the full extent of the information the bank will publish today. We don’t get the benefit of a 30- to 40-page MPR to elaborate on the bank’s outlook. And unlike MPR announcement days, there will be no media conference with Governor Tiff Macklem.
However, the bank does follow up these non-MPR rate decisions with a next-day speech and media conference with one of its top officials; in this case, Deputy Governor Sharon Kozicki is speaking at a lunchtime event in Montreal.
Until that speech and news conference, we’ll have nothing to go on but that handful of paragraphs. What’s pivotal is the final paragraph, which sums up the bank’s policy stand. It can be a bit cryptic to the uninitiated, but this is where the bank points at the direction it expects to take from here, as well as the factors that inform that stand or could alter it between now and the next rate decision.
Specifically, I’ll be watching closely for any change to this phrase from the October statement: “[T]he Governing Council expects that the policy interest rate will need to rise further.” Should the wording become less definitive, it would signal that the bank is approaching an end its rate increases. Similarly, if the last paragraph stops talking about the conditions influencing “future rate increases,” it would indicate that another hike is no longer a foregone conclusion.
– David Parkinson
BoC has signalled it intends to continue string of rate hikes
The Bank of Canada’s Governing Council sits down on eight pre-scheduled dates each year, usually about six or seven weeks apart, to decide what to do with interest rates. The December decision is the last of the year. Historically, it hasn’t been one for big policy pivots; the bank has tended to avoid shaking things up just before people shut down for the holidays. There hasn’t been a December rate change of any size or direction since 2008.
This decision will certainly differ in that regard. The Bank of Canada has signalled clearly that it intends to continue its string of rate hikes. It would, in fact, be a huge policy shift if the bank didn’t follow through with another increase; in the current situation, a hike would, in fact, represent the steady pre-holiday course. The big question is whether the bank cools the scale of the hike – down to a quarter of a percentage point from October’s half-point increase – or sticks with another half-point increase.
How interest rate hikes have unfolded so far in 2022
The Bank of Canada has been tightening monetary policy at a historic clip. After holding interest rates near zero through much of the pandemic, the central bank reversed course in March. It has since raised its benchmark rate six times in an effort to get runaway inflation under control. Here’s how it happened:
Bank of Canada holds off on raising rates
The Bank of Canada lays down its final preparations for a campaign against inflation, but stops just short of launching the first of what it signalled will be a series of interest rate increases.
POLICY INTEREST RATE: 0.25%
BoC raises interest rate by 25 basis points
The bank kicks off a series of rate hikes with a 25-basis-point move, pushing up borrowing costs for the first time since 2018– despite economic uncertainty caused by Russia's invasion of Ukraine.
POLICY INTEREST RATE: 0.5%
BoC announces first oversized rate hike in decades
The central bank shifts into higher gear, announcing the first 50-basis-point rate hike since 2000. Central bankers typically move in 25-basis-point increments.
POLICY INTEREST RATE: 1%
BoC hikes interest rates by another half percentage point
The bank moves by another 50 basis points and signals it would "act more forcefully if needed– teeing up the mega-hikes that would follow in the coming months.
POLICY INTEREST RATE: 1.5%
BoC raises key interest rate by 1 percentage point
The big one. The bank raises its benchmark rate by a full percentage point: four times the size of a typical rate hike and the largest move since 1998. The move catches investors off guard, showing how far the bank would go to tame inflation.
POLICY INTEREST RATE: 2.5%
BoC delivers 0.75 percentage point rate hike
The bank delivers another huge rate hike, moving by 75 basis points. This brings the policy rate above 3 per cent for the first time since 2008 and into "restrictive territory," where borrowing costs actively weigh on economic growth.
POLICY INTEREST RATE: 3.25%
BoC raises key interest rate by 0.5 percentage points
The bank catches markets by surprise again, although this time by going smaller than expected. "This tightening phase will draw to a close. We are getting closer, but we are not there yet," Bank of Canada governor Tiff Macklem says.
POLICY INTEREST RATE: 3.75%
Bank of Canada delivers half-point rate hike
The central bank increased its benchmark interest rate by 50 basis points, capping off the year with another oversized hike. This moves the policy rate to 4.25 per cent from 3.75 per cent – the first time it has topped 4 per cent since early 2008.
POLICY INTEREST RATE: 4.25%
– Mark Rendell
Why is everyone talking about the Bank of Canada?
Canadians haven’t had to think much about the Bank of Canada for the better part of four decades. Over the past year, it’s become impossible to ignore.
Inflation has surged for the first time in decades, cutting into wages and eroding the purchasing power of the dollar. Monetary policy has become a hot political topic. Conservative Leader Pierre Poilievre has said he would fire Bank of Canada Governor Tiff Macklem, while NDP Leader Jagmeet Singh has criticized the bank for continuing to raise rates.
The central bank has increased interest rates six times since March – the fastest rate hike in a generation. That’s making it more expensive for households to get mortgages and for businesses to secure loans. The housing market is cratering, businesses and consumers are getting nervous, and the central bank itself is forecasting near-zero growth for the next three quarters, putting the Canadian economy right on the edge of recession.
So why is the Bank of Canada raising interest rates? What’s happening with inflation? And what control over the central bank does the government have? Read our explainer.
– Mark Rendell
Bank of Canada expected to hike interest rates again
The Bank of Canada is expected to deliver its seventh consecutive interest rate hike today at 10 a.m. ET.
Governor Tiff Macklem has told Canadians that borrowing costs will go up again. But there is considerable uncertainty about whether the bank will raise its benchmark rate by 25 basis points or 50 basis points. (A basis point is one-hundredth of a percentage point).
Markets are betting on the smaller, 25-basis-point move, which would still lift the central bank’s benchmark interest rate to 4 per cent for the first time since early 2008.
Most forecasters believe the bank is approaching a turning point in its fight against high inflation. After a historic dash to increase Canadian borrowing costs, the bank is trying to fine-tune monetary policy. Inflation remains high, but the economy is starting to slow as interest rates bite.
“If we don’t do enough, Canadians will continue to endure the hardship of high inflation … If we do too much, we could slow the economy more than needed,” Mr. Macklem told the parliamentary finance committee two weeks ago, in his last appearance before the rate decision.
Analysts will be watching for signs about future rate hikes. The bank will only publish a one-page rate decision statement today, so analysts will be parsing the language closely.
Keep an eye on the last paragraph of the rate statement. Recent rate statements have said the bank’s governing council expects rates “will need to rise further.” Any change to that language would be a signal that the bank is preparing to pause the rate-hike cycle.
Markets expect the benchmark rate to reach 4.25 per cent early next year and remain at that level through the year.
Read more about today’s expected Bank of Canada interest rate hike announcement.