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The Bank of Canada increased its target for the overnight rate by another 0.25% to 5%

Today, July 12, 2023, the Bank of Canada increased its target for the overnight rate by another 0.25% to 5% and continues with its policy of quantitative tightening.

How does this increase affect variable rate mortgage holders? The mortgage cost on variable rate mortgages and secured lines of credit will increase by a further 0.25% whilst the mortgage cost for fixed rate mortgage holders will be unaffected. Variable rate mortgage customers will pay about $16 more per month per $100,000 borrowed.

Global financial conditions have tightened with bond yields up in Canada, the US and Europe as major central banks signal further interest rate increases may be needed to combat inflation.

How do increasing bond yields affect current fixed rates? Higher bond yields have led to an increase in all fixed mortgage rates thus posing a dilemma for mortgage holders with maturing mortgages as they will be renewing at substantially higher rates, upon renewal. Reach out to us if you have a maturing mortgage within the next 120 days so that we can help you navigate this situation.

Global inflation is easing but robust demand and tight labour markets are causing inflation to remain sticky and very stubborn.

Economic growth continues to be stronger than expected especially in the United States, Canada’s largest trading partner.

The BoC expects GDP growth of 1.8% in 2023 and 1.2% in 2024 as higher interest rates and continued quantitative tightening continue to work their way through the economy.

Canada’s inflation rate was 3.4% in May 2023, a sizeable decline from the 4.4% annual inflation rate seen in April 2023.

A continued excess of demand over supply and an elevated and stubborn core inflation gave rise to the BoC to increase the policy interest rate to 5% from 4.75%.

The Bank remains resolute in its commitment to restoring price stability for Canadians and will continue to evaluate whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving their 2% inflation target.

The next scheduled date for announcing the overnight rate target is September 6, 2023.

Warm regards, Keith Baker | | 604.723.5363 Jackie Zerbe | | 604.724.6982 (

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