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My Mortgage Blog

The Bank of Canada delivered a quarter-point rate hike this week, bringing its key lending rate to 4.75%.

Markets had been split over whether the Bank would choose to lift rates at this meeting or at its next scheduled monetary policy meeting on July 12.

In its statement, the Bank said the decision reflects its view that "monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target.”

It noted that the Canadian economy was "stronger than expected” in the first quarter and that consumption growth is "surprisingly strong,” while also referencing the uptick in CPI inflation in April.

The Consumer Price Index rose to 4.4% in April, signalling that the BoC may face a challenge bringing inflation back down to its 2% target.

The Bank expressed those concerns in its statement, saying that, "with three-month measures of core inflation running in the 3.50%-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.”

What it means for variable-rate mortgage borrowers

As a result of yesterday’s rate hike, banks and other financial institutions have lifted their prime lending rates to a 22-year high of 6.95%. Prime rate is used to price variable-rate mortgages and personal and home equity lines of credit (HELOCs).

The increase works out to roughly $15 per $100,000 of loan balance.

That means for someone with an adjustable-rate mortgage, where the monthly payment fluctuates based on changes to the prime rate, and a mortgage balance of $400,000, their monthly payments will rise approximately $61.

What happens now?

The Bank said it will continue to monitor economic data in the coming weeks, specifically "the dynamics of core inflation and the outlook for CPI inflation.”

However, markets are already pricing in at least another rate hike by September.

"With [yesterday’s] hike, the BoC is back in hiking mode,” wrote James Orlando of TD Economics. "Economic data are pointing to more strength and the Bank has yet to see any sign from the labour market that the economy is turning. We expect the BoC to hike again in July, bringing the policy rate to 5%.”

For those concerned about rising monthly payments, contact me today and we can go over your options, whether you’re looking to purchase, renew or refinance.