What to expect from the next Bank of Canada interest rate announcement
The Bank of Canada is set to issue an interest rate update, with experts predicting a potential rate hike that could impact mortgage payments and home values.
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Posted 9/1/2023, 12:00:00 PM
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Homebuyers looking to secure a lower mortgage interest rate in today's market can do so by improving their credit score, buying mortgage points, or locking in a rate.
Despite a slight increase in Canada's inflation rate last month, the Bank of Canada remains determined to bring it down to 2%, with the possibility of another rate hike being considered in September. However, some economists believe that the positive overall figures may allow the Bank to pause on rate increases without a significant negative impact.
Canadian mortgage borrowers are increasingly opting for fixed interest terms, with a record 95% of mortgage originations in June being fixed rate, reflecting a desire to avoid short-term interest rate hikes while not missing out on potential rate cuts in the future.
The Bank of Canada may shift its focus from the output gap to labor market indicators, such as unemployment and wages, in order to make inflation forecasts and guide its interest rate decisions, according to a report by CIBC economists. The report suggests that the labor market has become a more reliable indicator of excess demand or supply, and forecasts that if the job market outlook suggests it's not necessary, there may be no more rate hikes this year and rate cuts in early 2024.
Mortgage rates have followed a mixed trend recently, with 15-year fixed rates increasing slightly and 30-year fixed rates decreasing slightly, while the 5/1 adjustable-rate mortgage saw an increase; however, experts predict that rates will likely stay in the 6% to 7% range.
Canadian homeowners are facing higher borrowing costs as mortgage data from Royal Bank of Canada and Toronto-Dominion Bank show an increase in mortgages with longer amortization periods.
The Bank of England may have to increase interest rates if the US Federal Reserve decides to raise rates to cut inflation, in order to prevent the pound from weakening and inflation from rising further.
Canada's upcoming gross domestic product (GDP) reading is expected to be closely watched by the Bank of Canada (BoC) ahead of its September interest rate decision, with economists predicting a slowdown in the second quarter that could lead to a pause in interest rate hikes despite higher-than-expected inflation. The impact of recent wildfires and a dock workers strike is also expected to affect the data.
The Federal Reserve is considering raising interest rates again in order to reduce inflation to its targeted levels, as indicated by Fed Governor Michelle W. Bowman, who stated that additional rate increases will likely be needed; however, conflicting economic indicators, such as job growth and wage growth, may complicate the decision-making process.
The Bank of Canada is expected to keep its key interest rate steady at 5.00% and maintain that level until at least the end of March 2024, despite rising inflation and a revival in the housing market, according to economists in a Reuters poll.
Summary: Rising interest rates have revealed issues in home loan markets, causing stagnation in housing markets and difficulties for borrowers in countries like the US, UK, Sweden, and New Zealand, highlighting the value of the Danish system of long-term fixed-rate mortgages with prepayable options and flexible transferability.
British Columbia Premier David Eby has urged the Bank of Canada to halt further interest rate hikes, stating that another increase could worsen inflation and harm struggling Canadians. Eby emphasized the impact of rising rates on housing and called for a targeted approach to fighting inflation, focusing on housing and infrastructure improvements.
Canada's economy unexpectedly contracted in the second quarter, raising concerns of a possible recession, as declines in housing investment and slower exports and household spending impacted growth. This is likely to lead the central bank to hold interest rates steady.
The Canadian government is facing higher debt servicing costs as interest rates rise, resulting in billions of additional dollars spent on interest payments and less money available for other government priorities, potentially leading to difficult decisions about cutting spending or increasing taxes.
The Reserve Bank of Australia is expected to keep its key interest rate unchanged at 4.10% as inflation slows, but economists anticipate a final hike in the next quarter.
Wall Street banks are revising their outlooks for Turkish interest rates as inflation rises faster than expected, with JPMorgan, Morgan Stanley, and Bank of America suggesting that borrowing costs may need to rise higher or quicker in response to the surge in price growth.
Mortgage rates have increased over the past week, with the average interest rates for 15-year fixed and 30-year fixed mortgages rising, while the average rate for 5/1 adjustable-rate mortgages declined; the Federal Reserve's efforts to control inflation by raising the federal funds rate may impact mortgage rates, but experts suggest that the markets have already factored in the increase.
The Canadian dollar strengthened against the US dollar as stronger-than-expected jobs data raised the possibility of another interest rate hike by the Bank of Canada.
Pakistan's central bank is expected to raise interest rates to address inflation and bolster foreign exchange reserves, following a series of rate hikes earlier this year in response to economic and political crises.
The European Central Bank has implemented its 10th consecutive interest rate increase in an attempt to combat high inflation, although there are concerns that higher borrowing costs could lead to a recession; however, the increase may have a negative impact on consumer and business spending, particularly in the real estate market.
Russia's Central Bank has raised interest rates to 13% as it expresses concerns about rising inflation and an overheating economy due to increased government spending on the war in Ukraine.
Mortgage rates continue to rise, reaching an average of 7.18% for 30-year fixed-rate mortgages, as experts remain divided on whether the Federal Reserve will raise interest rates further.
The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting, but market participants will be closely watching for any hints regarding future rate cuts.
The Bank of England is expected to raise interest rates to 5.5%, potentially marking the end of its tightening cycle, as concerns about a cooling economy grow among policymakers.
The Federal Reserve is expected to hold off on raising interest rates, but consumers are still feeling the impact of previous hikes, with credit card rates topping 20%, mortgage rates above 7%, and auto loan rates exceeding 7%.
Canada's annual inflation rate in August rose to 4.0% due to higher gasoline prices, potentially leading to further interest rate hikes by the central bank.
Sweden's central bank has raised interest rates for the eighth consecutive time to combat high inflation, as the country's economy shows signs of improvement, while Norway's central bank also opted to raise rates and signaled the likelihood of another hike in December.
Central banks, including the US Federal Reserve, European Central Bank, and Bank of England, have pledged to maintain higher interest rates for an extended period to combat inflation and achieve global economic stability, despite concerns about the strength of the Chinese economy and geopolitical tensions.
The Turkish central bank has increased interest rates by five points to 30% in an effort to combat soaring inflation, which is above expectations, and the bank suggests that more rate hikes are likely in the future.
The Federal Reserve is paying attention to "real" interest rates, which measures rates adjusted for inflation, and is using this to inform its decisions regarding future rate hikes and inflation.