NEWS

The Bank of Canada announced a 25 basis-point (Bps) Overnight Rate increase this morning bringing the Bank’s Target Rate to 4.75%. The bank also announced that will continue its policy of quantitative tightening.

Tiff Macklem, Governor of the Bank of Canada, stated that Global inflation remains high and broad-based. Although inflation is dropping in many countries primarily due to lower energy prices and improvements to global supply chain, China’s abrupt lifting of Covis restrictions poses a risk to commodity prices and the war in Ukraine continues to generate uncertainty.

In Canada, economic growth has been stronger than expected and the economy remains in excess of demand. However, there is growing evidence that restrictive monetary policy is slowing activity. As the effects of interest rate increases continue to work through the economy, spending on consumer services and business investment are expected to slow. Meanwhile, weaker foreign demand will likely weigh on exports. The overall slowdown in activity will allow supply to catch up with demand.

In conjunction with the Bank of Canada’s Rate Announcement, the central bank also released its Quarterly Monetary Policy Report that outlines inflation being projected to fall around 3% in the middle of 2023 and reach the targeted 2% in 2024. A decrease rate that will generate a bumpy ride for consumers throughout 2023.

The Bank of Canada’s Media Release

Monetary Policy Report – January 2023

According to Ben Rabidoux of Edge Realty Analytics and author of the latest Housing and Mortgage Report done for Mortgage Professionals Canada, mortgage arrears is a lagging indicator that “tells us more about how consumers were faring 9-12 months ago than it does about the near future. But, Canada’s National Arrears Rate experienced an uptick from its all-time low back in October 2022. According to data from the Canadian Bankers Association, mortgage payments that are behind 3 months or more, rose to 0.15% from 0.14% where it was since June 2022. That seems to be a very small percentage but the 0.01% increase represents just over 7,400 mortgages in arrears out of a total of over 5.1 million.

The numbers do tell us “households are likely going into potential recession in a better position than during other turndowns”, according to Ben.

Sources: Bank of Canada, Canadian Mortgage Trends & Mortgage Professionals Canada