The central bank’s policy rate now stands at 3.25%. This marks the fifth rate hike so far in 2022 — Canada’s key rate was just 0.25 per cent in January.

		Read more: Not all Canadians are feeling the pain of interest rate hikes.  Here’s why that might change 		
		read more 		


			Not all Canadians are feeling the pain of interest rate hikes.  Here’s why that might change

Markets and economists had largely expected the 75 basis point move, which followed an outsized full percentage point rate hike in July. The Bank of Canada is raising interest rates in an effort to take the steam out of the Canadian economy and dampen consumer spending demand, curbing domestic fuel for inflation. Story continues below ad The central bank said in a statement that while second-quarter economic growth was slightly below its estimates, domestic demand remains “very strong” and the labor market remains tight. 2:39 Unemployment rate falls, but businesses still struggle to fill jobs Unemployment rate falls, but businesses still struggle to fill jobs – June 10, 2022 Crossing the 3 percent threshold is significant as it takes the bank’s policy rate beyond what it believes to be the “neutral range” and into territory where it is now actively suppressing economic growth. The annual rate of inflation came in at 7.6 per cent in July, down slightly from 8.1 per cent in June, as gasoline prices fell across Canada. However, the Bank of Canada in its statement noted that inflation excluding natural gas prices rose and widened last month, especially in the services sector. The central bank’s measure of core inflation came in at 5.5 percent in July, compared with 5.0 percent the previous month. Story continues below ad “The longer this continues, the greater the risk that elevated inflation will take hold,” the bank said, justifying its call for even higher rates.

		Read more: Bank of Canada refutes ‘cash printing’ claim in Twitter thread 		


			How high will interest rates go?

CIBC chief economist Avery Shenfeld said in a note Wednesday morning after the rate hike decision that the central bank was “a little more aggressive” than he expected. CIBC, which previously called for the bank to stop after a 75 basis point hike, now expects a hike of “at least” a quarter of a percentage point at the Bank of Canada’s next decision on Oct. 26. The Royal Bank of Canada also has its benchmark rate reaching 3.5% in the fall. RBC continues to forecast a “mild recession” in 2023. Story continues below ad 5:45 How to Prepare for a Recession How to Prepare for a Recession – July 7, 2022 BMO is “rising” by half a percentage point in October, but stronger or weaker inflation data could affect that requirement by then, according to Benjamin Reitzes, the bank’s managing director of Canadian rates and macro strategist. TD Bank senior economist James Orlando said in a note that the bank now expects the key policy rate to reach 4.0 per cent by the end of the year, a move that would take a further drag on Canada’s economy. “This implies an even greater sacrifice of growth as the BoC strives to achieve its target of price stability,” he wrote.

			What does rising interest rates mean for the housing market?

Story continues below ad When the Bank of Canada raises the benchmark interest rate, mortgages and some loans become more expensive to carry. Adjustable rate mortgages and home equity lines of credit immediately see their interest rates rise alongside central bank hikes, while holders of fixed rate mortgages pay more when they renew. According to comparison site Ratehub.ca, the owner of a $630,000 home who had a 3.5 per cent variable rate mortgage before this increase will pay an extra $236 a month – $2,832 more a year – as the interest rate now increases to 4.25 percent with a monthly payment of $3,155. The central bank’s statement on Wednesday said that with mortgage rates rising over the past seven months, the “housing market is contracting as expected”, calling the rise in house prices seen due to the pandemic “unsustainable”.

		Read more: Canada braces for ‘unprecedented’ decline in home prices by early 2023: TD Bank

RBC assistant chief economist Robert Hogue said in a report Wednesday that higher interest rates this fall “will continue to chill markets in the coming months. “ “We see the recession deepening and spreading as buyers take a wait-and-see approach while they see the impact of higher lending rates,” he wrote. Hogg said Vancouver and Toronto, as well as surrounding areas, are at greater risk of withdrawal, citing their “excessive price gains” during the pandemic. Story continues below ad 2:53 Consumer Affairs: Restocking as interest rates rise © 2022 Global News, a division of Corus Entertainment Inc.