Bank of Canada hikes interest rate to 2.5%

The Bank of Canada has released its latest interest rate decision and is moving aggressively against inflation by increasing the cost of borrowing. Former parliamentary budget officer Kevin Page weighs in.

Well the number is in the bank of canada just announced its interest rate decision why don’t i send that over to you cbc business reporter scott peterson watching closely i’m getting that sense scott what is it it is a whopper i’ve never seen this before and i’d have to check the records but it’s up 100 basis points that means the overnight uh interest rate by the

Bank of canada is up up to 2.5 that’s beyond the 75 basis point that we were expecting uh and the 75 point rise would be the highest going back to 1998 so that predates that so this is really a red flag now by the bank of canada say that they are very serious about rising inflation in the country and a hundred basis point rise by the bank of canada overnight now the

Backdrop here is we’re at 40-year high inflation rates 7.7 percent is canada’s inflation rate and that’s the highest it’s been going back all the way to 1983 and that’s significant because back then we saw mortgage rates nearing 20 percent and so the bank of canada clearly taking this uh as an indication it has to move aggressively against that inflation rate so a

Big surprise a hundred basis point rise 2.5 our new overnight interest rate suhana and i should mention as well that’s the rate that the banks borrow at so that’s increased automatically and that will hit variable rates immediately and eventually a lot of other rates as well fixed mortgage rates line of credit car loans etc so a big announcement from the bank of

Canada just this moment and i know we’re watching for a news conference that’s set for about 11 a eastern so in an hour we’ll get the why behind this one percent hike what will you be listening for scott uh certainly there’s gonna be a lot of questions for tiff macklin the bank of canada governor as far as is he moving fast enough is be is he behind the curve and

More importantly and most importantly how high does he think this rate is going to go is it going to be three percent he’s indicated it could go over three percent three and a half percent a lot of economists think by the year end so that’s all important particularly for people that are already stretched with their mortgages watching very closely the language as

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Far as how high he thinks the rate’s going to go so so a big surprise already from the bank of canada we will talk again thank you scott sounds good for reaction our chase team has reached kevin page in ottawa he is a former parliamentary budget officer also president and ceo of the institute of fiscal studies and democracy at the university of ottawa kevin you’ve

Been on the program before always great to have you back on tell me 100 basis points one full percent did that shock you yeah it’s a shocker it’s um i think a lot of people in the market say hannah were thinking 75 basis points uh even at 75 basis points that would have been a big increment we’ve seen previous increments at 50 basis points so actually you know to

Go to a full percentage point it’s a bit of a shocker but you know there were people thinking out there there’s people thinking the united states you might see something similar another a full 100 basis point increase in in their policy rate as well we’re talking about inflation being one of the things that is causing this full percentage hike in canada apparently

The bank of can bank of canada expects it to remain about eight percent we’re getting the overnight inflation in the u.s at nine percent so does that calm the fears of rising inflation the bank being so aggressive yeah the bank is is definitely being aggressive i think even at um at 2.5 that’s the policy rate today uh it’s still you know considered to be you know

Relatively accommodative or low relative to what a trend would be it would you know even if we had inflation in the one to three percent range the bank would be comfortable of having a policy rate of about three percent so we’re still it’s still an accommodative interest rate but it’s a very big increase from where uh when we were having these conversations earlier

In the year uh yeah it’s an aggressive it’s a much aggressive stance with respect to the you know you know how they’re looking at inflation right now people who bought houses when the interest rates were you know like one and a quarter percent perhaps even less in some cases they are what do you think they’re doing right now yeah i think the housing market is

Probably really the area that we need to be most concerned about you know there’s a lot of talk about a soft landing in this environment for the economy raising interest rates trying to cool the economy try to you know you know change the arc on these rising inflation rates but yeah right now for for mortgage uh for people that have bought a bought a house over

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The past couple of years uh their big concern is to see month-to-month declines in housing prices uh these increases in in mortgage rates you know of 100 basis points it’s hundreds and hundreds of dollars per month for people that are carrying a mortgage of 500 000 so uh it’s it’s definitely the big concern i think the bank probably got it wrong with respect to

In 2021 we start to see these big increases in inflation rates i think now we need to be a little bit concerned that the bank you know needs to be worried about the risk in the in terms of the housing market because we don’t want to really you know trick a bubble that’s that potentially could be there in the housing and the housing market one of the things we always

Have been watching here on uh here at cbc news network is uh china’s economy i mean they’re fighting uh outbreaks of covet 19. we’ve been looking at the war in ukraine uh oil prices being high and also being volatile how does all of that fit into global economic growth and where canada stands with its growth yeah so i mean i think expectations for global growth

Um are certainly coming down for this year and for next year and because of covet in in china i think because of energy related supply issues in europe uh just in this massive amount of certainty and we see central banks attacking inflation really across the world so this is gonna you know this is gonna slow growth in canada though those uh economic projections

That underpin budget 2022 were far too optimistic uh and yeah so i think we’re you know people are finance ministers central bankers were adjusting to a slower growth environment and are you starting to see some flattening in terms of commodity global commodity prices because now people are factoring in the possibility of a recession and let’s talk about that i

Mean last week kevin economists with rbc predicted canada is headed towards a moderate uh recession what do you make of that projection yeah i think again we can’t you know this isn’t this you know an assumption of where we might be i mean it’s clear that when we get the announcement as we did today from the government of the bank of canada that they’re attacking

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Inflation they’re raising interest rates dramatically as scott alluded to we haven’t seen this kind of upward you know increase in interest rates in modern history so again it’s almost it’s an almost a planned induced kind of slow down the economy again we hope that they can be soft so we won’t see you know significant declines in output significant increases in

Employment uh which would be i think difficult for all countries and and certainly our political leaders and finally kevin you know we’ve been talking doom and gloom as you say people who have variable rate mortgages they’re probably just wondering what the heck am i going to do now um people who have lines of credit who have debt who who benefits now who where is

The upside well i think the upside like sugan is like you can’t actually see and if you one combs the data you don’t actually see signs of a recession anywhere you see a strong labor market you see uh when we look at business outlooks type of surveys uh we they see future sales growth dampening somewhat but still still stalls a strong growth uh yes your business

Is intending to invest so the you know honestly like the recession is something that’s it’s really you know could be many many months many quarters kind of down the road so again as long as the labor market stays strong we could find a way to pay these sorts of bills we can avoid kind of this sort of you know month-to-month or quarter of the court quarter declines

And output increases in employment so again there is some positive that we’re still seeing on a relatively strong economy and when we look at household saving rates business saving rates they’re pretty strong all right there is some light at the end of the tunnel then and it isn’t a train rushing towards us kevin always great to have you on the program you’d be

Well okay good to be with you suhana kevin page is a former parliamentary budget officer he’s also president and ceo of the institute of fiscal studies and democracy at the university of ottawa

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Bank of Canada hikes interest rate to 2.5% By CBC News