Expect another turn of the screw from banking institutions. Interest rates on mortgages, personal loans, business loans will go up further.
The Bank of Canada (BoC) raised its key rate by another half a percentage point on Wednesday, taking it to 4.25%. This is four points more than at the start of the year when the key rate was at the floor, at 0.25%.
On the other hand, in the press release from our central bank there was good news: “In the future, the Board of Directors [de la Banque] assess whether it is necessary to raise the policy rate further to bring supply and demand into balance and inflation to target. »
This statement suggests that the long series of seven consecutive key rate increases, which began last spring, would be coming to an end.
One thing is certain, it is high time to stop the rise in interest rates.
Quebec soon in recession
Another tightening of monetary policy threatens to push us into recession.
Moreover, Hélène Bégin, senior economist at Desjardins, clearly indicated on Wednesday that a recession seems imminent in Quebec. It is based on the 3e monthly decrease in the Desjardins Leading Index (DPI) where almost all the indicators that enter into the calculation of the DPI are strongly negative.
“The significant decline in the IPD for three months now sends a clear signal: the Quebec economy will suffer a significant deterioration and the first half of 2023 will be particularly difficult. »
And high inflation persists
To justify its increase of another half a percentage point, the BoC cites the high rate of inflation, as the consumer price index held steady at 6.9% in October. Many common consumer goods and services posted sizeable increases.
Although core inflation measures remain around 5%, price pressures may be easing, inflation is still too high in the eyes of the Bank of Canada.
“And the longer consumers and businesses expect inflation to stay above target, the more entrenched high inflation is likely to be. »
The Bank’s target? Barely 2%! We are far from the goal.
The BoC believes growth across Canada will “essentially stagnate” through the end of the year and into the first half of 2023.
There is no doubt that the tightening of monetary policy succeeded in curbing domestic demand, while consumption moderated in the 3e quarter and the housing market slowed.
But commodity exports remain strong and the labor market “remains tight” with unemployment at historic lows. This is why the Bank of Canada remains on the alert!
Whose fault is it ?
According to economists Jean-François Perrault and René Lalonde of the Bank of Nova Scotia, reports the Canadian Press, it was the federal government’s spending on COVID-19 support programs that forced the Bank of Canada to aggressively raise rates. of interest.
They say federal support for COVID-19 victims of more than $200 billion was “welcome, but probably overkill.”
This spending has created excess demand that the Bank of Canada is trying to curb by raising borrowing costs.