0.5% increase next week still remains the likely outcome, he adds
Canada’s inflation trend is adding to the possibility of even larger interest rate hikes by the central bank, according to Ratehub.ca.
The inflation rate reached its highest level in 31 years last month, increasing from 6.7% in March to 6.8% in April. Statistics Canada said that the gains mainly stemmed from soaring housing costs and global oil prices.
“Inflation continues to track higher, which makes a 50-basis-point rate hike the most likely and a 75-basis-point rate hike possible,” said James Laird, co-founder of Ratehub.ca and president of CanWise Financial.
The Bank of Canada has scheduled its next interest rate announcement on June 1, with majority of market observers expecting the central bank to increase the key overnight rate by 50 basis points.
Read more: Mortgage market feels the impact of rising rates
Considering the trajectory of the Canadian economy, Laird is anticipating further large increases as 2022 drags on.
“The bond market is pricing in at least an additional 100 basis points of rate hikes for the remainder of the year,” Laird projected.
The likely impact on market activity should not be underestimated, Laird said.
“The expected rate hike will have a further cooling effect on both the number of real estate transactions and prices across the country,” Laird said.
“Anyone with a variable rate mortgage should understand what their payment will be with a 50-basis-point increase next week, and they should budget for additional rate increases totalling 1%-2% for the remainder of the year,” he added. “Fixed rates have already increased by 1.75%-2%, because bond yields have been pricing in the anticipated Bank of Canada rate increases.”
