Mortgage Blog

Bank of Canada Rate Announcement - March 2, 2022

March 2, 2022 | Posted by: Ken Fadel

As widely expected, the BoC has announced a 25 bps increase to its benchmark interest rate, which now sits at 0.50%, marking the first time this rate has increased since 2018 and signalling the end of historically low rates that have persisted throughout the pandemic. 

The move was widely expected despite the uncertainty brought on by Russia’s invasion of Ukraine.  Inflation surpassed 5% for the first time in over 30 years in January and Statistics Canada data showed Canadian economic growth of 6.7% was slightly stronger than the expected 5.8% estimate in the fourth quarter despite renewed COVID-19 restrictions.  The BoC now expects inflation to rise further in the near-term, and said there’s an elevated risk that 'longer-run inflation expectations could remain stubbornly high.”

The announcement also portrayed Russia’s invasion of Ukraine as a “major new source of uncertainty” with prices for oil and other commodities rising, a development that could contribute to further inflation while having negative impacts on consumer confidence and global economic growth.  Pandemic-related concerns appear to be weakening slightly, with the BoC stating that economies were recovering “more quickly than expected” from the impact of the Omicron variant.  They did however state that the potential emergence of new variants remains a cause for concern.

The BoC stated that the timing and pace of further increases to the overnight rate and the start of its quantitative tightening policy would be guided by the overall condition of the Canadian economy and how quickly inflation returns to its 2% target.  Economists polled by expect Canadian interest rates to rise five more times, bringing the benchmark rate to 1.75 per cent by the end of 2022.

However, rising rates will weigh heavily on Canadian households and their growing debt levels, which have risen to a record-high of $2.6 trillion in the third quarter of 2021.  Given much of that debt is in the form of mortgages, increasing rates should begin to rein in home price growth over the rest of the year.

The BoC’s next rate decision is scheduled for April 13 at which time it will also release its quarterly Monetary Policy Report.

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