Reading Between the Lines of Today's Rate Increase

Oversized hike....but less than expected

Tiff Macklem and The Bank of Canada (BoC) increased rates for the 6th, consecutive time this year. Though today's boost of 0.5% will be a surprise to markets that were pricing in a larger bump of 0.75%. Generally, the BoC is deemed to have been too slow on their rate increases. And while they've been aggressive in playing 'catch up', coming in with a smaller-than-expected increase is certainly noteworthy and sends a clear message that even they are being cautious in taking these increases too far.

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The BoC had carte blanche to increase the overnight rate by 0.75% or more. That they chose to come with a smaller increase would seem to tell us that though inflation is still the priority, they are clearly paying attention to the risks that come with taking their policy rate too high. If they do go too high, they risk causing a potentially deeper recession that could be avoided. 

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There was clear indication in this announcement that rates would likely have to increase further. But from here, the BoC will be walking a fine line: their policy decisions will be driven by the data that comes in and will almost certainly not be oversized increases but instead, fine tuning adjustments if and when needed. And overall, this should be taken as good news. We're now in a position where the rate increases that have taken place will likely be given time to take effect and filter through the system. And I think that's what we've all been looking forward to.

The Consumer Confidence index hasn't been as low as we're seeing it now since the early stages of the pandemic. Remember when we were all fearful for a large portion of the world's population? That lack of confidence is born out of fear and uncertainty. Once we have an established direction, we are a phenomenally resilient group. So I believe this news comes as a positive today. One that will move us toward more stable and sure footing from which we can act more confidently.

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We're not yet through this just yet. But for those feeling some discomfort around the increasing costs of interest rates and inflation, there are options to provide some space to breathe. If you find yourself curious about what options you might have around freeing up some cash flow or equity, please don't hesitate to reach out. We're more than happy to discuss your options around refinancing in some payments, re-amortizing your current mortgage and re-setting your budget.

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As always, please feel free to pass this on to anyone who might find some benefit. And if you have any questions on your mind or need anything from us, please don't hesitate to reach out! We're always happy to help.