Following the Bank of Canada's decision to maintain its benchmark rate at five percent on Wednesday, September 6, 2023, experts have expressed differing opinions on the central bank's future rate policy. The announcement to keep rates steady was part of the bank's ongoing efforts to bring inflation down to two percent, a move that was in line with most economists' expectations.
In its official statement, the Bank of Canada noted signs of economic weakening observed in recent months, which it considers necessary to curb inflation. However, the bank also warned it is ready to increase the policy interest rate further if needed. The central bank will evaluate factors such as excess demand, inflation expectations, wage growth, and corporate pricing behavior to ensure they align with achieving the two percent inflation target.
Opinions among experts varied on whether Canadians can expect further hikes before the end of 2023. Earl Davis, head of fixed income and money markets at BMO (TSX:BMO) Global Asset Management, anticipates further hikes in the near future. However, Ed Devlin, founder of Devlin Capital and former head of Canadian portfolio management at PIMCO, expressed uncertainty about upcoming hikes due to prevailing economic uncertainties.
Tu Nguyen, an economist with RSM Canada, expects the Bank of Canada’s hold will extend further. She believes that additional rate hikes could risk pushing the economy into recession and result in more job losses than necessary. According to Nguyen, a premature rate cut could risk reaccelerating inflation again.
The next rate announcement is due on October 25, with another one scheduled for December 6. However, experts suggest that Canadian mortgage owners should prepare for a potential rate hike. Over the past year and a half since March 2022, the Bank has raised interest rates ten times.
Daniel Vyner, principal broker at DV Capital, advised mortgage owners not to underestimate a potential hold from the Bank of Canada. He explained that even if rates remain unchanged next week, mortgage owners will continue to feel the impact of previous interest rate increases. This is particularly true for those with variable-rate mortgage products whose payments would rise with prime rates.
James Laird, co-chief executive officer of Ratehub.ca and president of CanWise Mortgage Lender, echoed this sentiment by advising borrowers to budget for a potential rate hike. He emphasized that despite holding rates at the last announcement, an increase remains a possibility.
The impact of these decisions extends beyond individual borrowers to affect the larger housing market. An increase in interest rates could put downward pressure on home values which have plateaued over the summer according to Laird. Conversely, if rates hold steady, it could stimulate demand by encouraging potential buyers off the sidelines.
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