The magnitude of further spikes will continue to depend on the national economy's stability, says Sherry Cooper
The Bank of Canada is highly likely to implement another series of rate hikes following its 50-basis-point policy rate increase on Oct. 26, according to economist Sherry Cooper.
Cooper warned of the implications of this week’s hike – which was the central bank’s sixth straight increase – on the housing market.
“The prime rate will now quickly rise to 5.95%, increasing the variable mortgage interest rate another 50 bps, which will likely take the qualifying rate to roughly 7.5%,” Cooper said. “Fixed mortgage rates, tied to the five-year government of Canada bond yield, will be less affected.”
And while the BoC’s latest hike was 25bps lower than Cooper initially expected, the move still “reflected the Bank’s significant downgrade to the economic outlook. Weaker growth is expected to dampen inflation pressures sufficiently to warrant [the] smaller move.”
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The magnitude of the hikes that would follow the Oct. 26 announcement will continue to depend on the national economy’s stability, Cooper said.
“Barring substantial further weakening in the economy or a big move in inflation, I expect the Bank of Canada to raise rates again in December by 25bps and then again once or twice in 2023,” Cooper said. “The terminal overnight target rate will likely be 4.5%, and the bank will hold firm for the rest of the year.”
