Bank of Canada’s aggressive stance to control inflation has not changed the course with its, most anticipated, announcement on Wednesday, September 7, 2022, of a .75% increase in the overnight lending rate, bringing it to 3.25%, the fifth increase this year. The BOC started with a .25 percent rate at the beginning of the COVID-19 pandemic.
The experts expect that we may see one or even two increases of .50 by the end of the year.
The statement released by the bank shows a continuation of this mood until it gets the inflation to an acceptable rate of 2%.
Major banks have or will follow suit to increase their prime rates. What it means for the homeowners is that they will see the overall increase in their mortgage payback period that is it would take many more years to pay back their mortgage, if the bank does not change their monthly payment. Or, they will have to budget for several hundreds of dollars increase in their monthly mortgage payments, should their bank adjust their rate as a result of the BOC’s rate increase. The first case is worrisome but the second is even more serious as many families who have stretched to their limits, will have a hard time coming up with the increase.
Despite the higher inflation, we have seen the economy booming and the unemployment rate at its bottom in recent days.
With BOC’s aggressive approach having one-point agenda to control inflation may lead Canada into recession, as many experts are raising their concerns. Some have forecasted that we may lose close to a million jobs, should we enter into a recession.
Commenting on this aggressive approach, many economists are raising their concerns about slowing down the economy and increasing the unemployment rate. They also note that the true impact of the already raised rates has not been seen as it would be more clearly visible at the time of renewing the mortgages for the homeowners.
My opinion is that all our policies, including fiscal policies, should always be human-focused. After all the policymakers are here not only to crunch the numbers but make their decisions on how to make an average person’s life more comfortable. Having said that, I would take a hybrid approach and try to find an increase in supply in addition to traditional measures of rate hikes but don’t go only on increasing the rates regardless of what happens to a common person.
Despite increased prices, having people on jobs and bringing food on the table for the family is much better than people losing jobs, declaring bankruptcies, and looking for food banks to support their families.
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