*Insert clever commentary on 7th rate hike of 2022 here*

How I miss 2021...

It feels like it wasn't that long ago where I was lamenting how to creatively let you know that the Bank of Canada (BoC) wasn't doing anything with interest rates. What I wouldn't give to have that problem in place of the one I have today. The one where I have to let you know that the BoC has increased their overnight rate by 0.5% today...which is the 7th consecutive increase of 2022...totalling a 4% jump from March of this year. For those keeping score at home, that's a lot. 

In today's announcement, there was a shift in dialogue from Tiff Macklem who Governs the BoC. Rather than the October meeting where he was explicit that rates will need to rise further, today's verbiage shifted to consideration of 'whether the policy rate needs to rise further'. Expectations around inflation are still higher than what the BoC would like, so shutting the door entirely on further rate hikes just isn't in the cards. But the dialogue today suggests that we are either at or very, very close to the end point of this tightening cycle. I'm quite sure I'm not alone in hoping for a pause - and a long one at that. 

Just yesterday, the BoC tweeted (what - you don't follow them on Twitter?!?!) that it takes 18 to 24 months to see full effects of rate increases. Intentional? I have to think so. The reality for us as Canadians is that though the rate hike cycle is potentially-to-probably done, we're still going to have to endure the effects of it for some time yet. Some stable footing would certainly help out the psyche of borrowers and prospective home buyers making decisions going forward.

I find that general platitudes and relentless optimism ring hollow when delivering less-than-optimal news. So I'll spare you. The objective reality is that these rate hikes happened for a reason. And that reason was to slow things down economically to a more sustainable level. They will do their job and things will get a little more economically-sucky (it's a real economics term - look it up) before returning to 'normal'. Interest rates will eventually have to come down. Inflation will fall into line. It's just going to take a bit of time to get there.

What to do in the meantime

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This is a topic we have been and will continue to give a lot of air time to. As we inevitably wade into a recession there will be some borrowers that need relief in the form of a refinance to free up some cash flow. If you count yourself in that group or have concerns around budgets and cash flow, reach out and connect and we can run you through some options or help put your mind at ease.

To fix or not to fix? I still fall into the 'not' category. Variable rates have provided more than their fair share of stress and strain which will no doubt have people looking for the exit. But now almost certainly isn't the right time. Odds are, your variable rate is just now hitting current fixed rate levels. And the bond market which influences fixed rates is predicting that we're at the ceiling and is already looking forward to rate cuts. As hard as it is, patience is key for now in my opinion. Fixed rates will most likely lead the charge down at some point in 2023. And as I said last week - fixed rates have probably peaked. It's worth noting that after this morning's rate announcement, bond yields only dipped further - adding to downward pressure on fixed rates.

Today kind of reminds me of hiking a mountain. The way up hurt my lungs. The way down hurt my knees. But there was an almost cold beer waiting for me at the bottom. We're probably in the same boat now having completed our rate ascent and looking at the way down into recession. It'll hurt your knees. But there will be an end point and a cold beer. If you're looking for a hiking buddy and some guidance, please reach out. We are here to help.