BJK Financial Group Blog

Well, They Raised Interest Rates. What Happens Now?

May-12-2022


Last month I wrote about the state of the housing market in Canada. Housing prices in Canada in the last couple of years had been increasing dramatically – some would argue dangerously. Along with the overheated housing market, we are now witnessing inflation rates that haven’t been seen in Canada in close to 50 years.

So, to deal with these twin crises Tiff Macklem, the Governor of the Bank of Canada, announced an increase in the prime rate of 50 basis points on April 13. This raises the Canadian prime rate to 1% and is the single largest rate hike in over twenty years.

 

The inflation rate needs to come down

Macklem explained that the Bank of Canada had determined that “Inflation is too high. We need higher interest rates.” He blames much of the current inflationary environment on global events – specifically the war in Ukraine. This has driven up the price of commodities like oil.

 

The Bank of Canada want to manage expectations

According to the governor, one of the other factors affecting the bank’s decision was their need to make sure Canadians don’t begin to expect these inflationary conditions to continue. Once our expectations become fixed, breaking the inflationary cycle will become increasingly difficult to break.

We’ll have to see just how long the war in Ukraine continues and what its long-term impact on the world economy will be. Clearly Macklem is hoping these pressures ease soon and allow the Canadian economy to return to the Bank’s expected inflationary rate of about 2%. Current rates in the range of 6% are simply unstainable.

It seems interesting to me that things like the price of housing in Canada (which I wrote about last month) and the ongoing challenges to the global supply chain caused by COVID-19 got very little mention in the clips of the Governor’s announcement that I watched.

How much of the inflation we are currently seeing would still be hitting the Canadian economy if Putin had never decided to head for Kyiv? Would there have been any announcement or rate hike if we had never got to know Volodymyr Zelenskyy?

 

What is the impact of inflation on your pocketbook?

You and I know that inflation has hit Canadians hard in the spring of 2022. You just have to go fill the tank, wondering if you can afford to get an EV after all, or look around the produce department deciding between romaine and iceberg lettuce.

These rate hikes have already had a cascading effect on the price of borrowing. Mortgage rates have increased, and the housing market has begun to cool off. AS always, we will have to watch carefully to see how the economy continues.

If you think it’s time for a re-evaluation of your investment products or your overall economic expectations, let me know. As always, universal conditions affect each of us differently. You can only decide how to decide how to proceed by examining your own circumstances. Go ahead, let me help.

Brian Kettles at 1:35 PM
RSS icon Facebook icon Twitter icon LinkedIn icon

Contributors

Brian Kettles
Name: Brian Kettles
Posts: 33
Last Post: February 27, 2024

Latest Posts

Show All Recent Posts

Archive

Tags

Blog Disclaimer

 

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This Blog was written, designed, and produced by Todd Race Copywriting for the benefit of Brian Kettles who is a investment fund advisor at BJK Financial Group a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.

 

Mutual Funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc.

 

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. Investia is not liable and/or responsible for any non mutual fund related business and/or services.