The market was expecting a 0.75% increase. The Bank is also continuing its policy of quantitative tightening (QT).
The aggressive action of the BoC is due to the higher and more persistent inflation which now sits around 8%.
Factors that continue to put upward pressure on inflation include global factors such as the war in the Ukraine and the ongoing supply chain disruptions but domestic pressures from excess demand (the old adage: too much money chasing too few goods) is becoming more prominent and is driving inflation upwards.
Inflation is a lagging indicator and so all the actions that the BoC takes to combat inflation will take time to work through the economy and we can already see decreases in commodity prices.
Global inflation is also rising and central banks’ tightening monetary policy and the resulting tighter financial conditions are moderating economic growth. The BoC now expects global economic growth to slow to about 3½% this year and 2% in 2023 before strengthening to 3% in 2024.
The BoC expects Canada’s economy to grow by 3.5% in 2022 and expects the Canadian economic activity to slow as global growth moderates and tighter monetary policy works its way through the economy.
The BoC sees its monetary policy and the resolution of supply chain disruptions, will bring demand and supply back into balance and alleviate inflationary pressures with the July outlook has inflation starting to come back down later this year, easing to about 3% by the end of next year and returning to the 2% target by the end of 2024.
The BoC is resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.
Against this back-drop of events the variable rate mortgage is now still attractive versus going with a mixed mortgage and more so if have a mortgage coming up for a renewal in the next few months. Give us a call to discuss your options.
The next scheduled date for announcing the overnight rate target is September 7, 2022.
Warm regards, Keith Baker | kpbaker@shaw.ca | 604.723.5363 Jackie Zerbe | jacqueline@totalmortgage.ca | 604.724.6982 TotalMortgage.ca (@TotalMortgage.ca)
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