*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[chemgear]

Throwing more gasoline on the fire, will need even more hikes.

https://www.bnnbloomberg.ca/trudeau-...rees-1.1818269

Economists had already begun to warn Trudeau against measures that could worsen inflationary pressures. Since last week, three of the country’s largest commercial lenders -- Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia -- have released reports expressing concern over using revenue windfalls for additional spending.

Scotia doubled down on its criticism Tuesday. “It seems sensible to assume that this will add to pressures on measures of core inflation,” economist Derek Holt said in a report to investors. “Any belief that it will ease inflationary pressures must have studied different economics textbooks.”

[Slava]

Originally Posted by Weitz

Is cheap money even driving inflation at this point?

It doesn't look like it, but it's complicated. Supply issues were driving things, and those are easing (or have eased). It just takes time to get this worked through the system though. Things like fuel/gasoline have dropped significantly over the past few months. Housing/shelter haven't dropped as much. A couple of the large grocery CEO's in Canada say that prices should ease on that front as well, which is generally a positive for people.

Those are the types of things that the central bank would have the central bank ease their foot off the pedal, regarding rate hikes...but none of the comments are particularly dovish on that front, at least not yet.

[calculoso]

Depends on what industries. Electronics components are still insane with a lot of profiteering going on (eg: previously $5 chips going for $800+, if they can be found at all)

[Slava]

Canada came in at 7% this morning as opposed to 7.6% in July and 7.3% as estimate. This was largely due to the dropping price of fuel, but not solely.

[PeteMoss]

Originally Posted by Slava

Canada came in at 7% this morning as opposed to 7.6% in July and 7.3% as estimate. This was largely due to the dropping price of fuel, but not solely.

Yep -

And so-called core inflation — which strips out volatile items like food and energy — fell to 5.2 per cent, down from 5.4 per cent the previous month.

[opendoor]

Originally Posted by Slava

It doesn't look like it, but it's complicated. Supply issues were driving things, and those are easing (or have eased). It just takes time to get this worked through the system though. Things like fuel/gasoline have dropped significantly over the past few months. Housing/shelter haven't dropped as much. A couple of the large grocery CEO's in Canada say that prices should ease on that front as well, which is generally a positive for people.

Those are the types of things that the central bank would have the central bank ease their foot off the pedal, regarding rate hikes...but none of the comments are particularly dovish on that front, at least not yet.

Some of the non-interest rate measures they're taking to reduce inflation will also tend to impact interest rates as a side effect. For instance, the Bank of Canada bought hundreds of billions of dollars of government bonds in 2020 which they're slowly letting mature and not repurchasing. That will lead to lower liquidity and a slight constriction of the money supply, as other investors will use liquid cash to purchase the replacement bonds. But that leads to rising bond yields, as those investors have to have attractive enough yields to warrant purchasing them. While bond yields aren't necessarily directly tied to overnight lending rates, they usually move in lockstep.

And beyond anything happening in Canada, we do also have to largely mirror what the US is doing unless we want our currency to tank (see Japan recently).

[albertGQ]

Originally Posted by Slava

Canada came in at 7% this morning as opposed to 7.6% in July and 7.3% as estimate. This was largely due to the dropping price of fuel, but not solely.

What does this mean in terms of interest rates? Nothing?

I'm hoping the BOC doesn't increase interest rates again

I'm on variable and just getting screwed over big time.

[opendoor]

They'll definitely keep raising rates. Even if inflation gets under control in Canada, we need to more or less keep pace with the US's rate increases unless we want a $0.60 Canadian dollar again. Hopefully the US slows its pace soon (assuming inflation there shows signs of softening).

[pseudoreality]

Originally Posted by albertGQ

What does this mean in terms of interest rates? Nothing?

I'm hoping the BOC doesn't increase interest rates again

I'm on variable and just getting screwed over big time.

I think it means a 0.75 % increase, and not a 1%. Rates are going to go up until inflation is in the target 2 - 3% range.

[Slava]

Originally Posted by albertGQ

What does this mean in terms of interest rates? Nothing?

I'm hoping the BOC doesn't increase interest rates again

I'm on variable and just getting screwed over big time.

I would anticipate another rise or two this year (two more opportunities for them to change the rate, unless there was an emergency session, which is not likely!)

Originally Posted by opendoor

They'll definitely keep raising rates. Even if inflation gets under control in Canada, we need to more or less keep pace with the US's rate increases unless we want a $0.60 Canadian dollar again. Hopefully the US slows its pace soon (assuming inflation there shows signs of softening).

There's been nothing dovish from the Bank of Canada or Federal Reserve at this point. Everything they say has suggested that they will make sure that inflation gets to the target range (which is 2-3%). That suggests continued rate increases.

That said, they could pause the increases if inflation appears to be subsiding. They could also raise by 0.25% instead of a projected 0.50% and that would be a strong signal to the market overall.

"Guessing at the future rate of interest is, in my opinion, one of the most puzzling problems in the world." - John Maynard Keynes

[opendoor]

I do think part of their messaging has been aimed at reducing inflation expectations. The core things driving inflation (energy prices, supply crunches) can be solved and in some cases are already looking somewhat optimistic. For instance, unless oil jumps back up, we could be seeing 0% year-over-year inflation in that by October.

But if people expect high inflation, it can become somewhat of a self-fulfilling prophecy. Why hold off on buying something if you think it's just going to be 10% more expensive next year? But then that high demand just spurs on more inflation. So by being extremely hawkish, I think central banks are hoping to stamp out the idea of a prolonged inflationary period.

Ultimately, they'll still be relying on indicators to base their decisions, but they don't want to appear like they're wavering at all until then. So I agree that we could see a pause in rate hikes in early 2023 if the numbers are generally heading in the right direction.

[Muta]

Sooo... should I suck up my ego, bite the bullet and lock my mortgage in (ie. equivalent of buy low sell high, haha)? Or has that ship sailed and now I should ride out my variable rate in the hopes rates go down later... got 2.5 years left until renewal

[Ashasx]

I think at this point you just have to ride it out.

At the same time, who knows. Maybe we start seeing something we haven't seen for 20 years and rates go even higher yet and stay high for a while.

[Weitz]

Originally Posted by Muta

Sooo... should I suck up my ego, bite the bullet and lock my mortgage in (ie. equivalent of buy low sell high, haha)? Or has that ship sailed and now I should ride out my variable rate in the hopes rates go down later... got 2.5 years left until renewal

I wouldn’t lock in. If you were up for renewal I would Say to lock in short term as I suspect rates will start to fall once the recession hits. Some may argue but that’s my prediction.

[blankall]

You have to keep in mind that banks employ people full time to come up with those rates. The people doing this are the best and brightest in their field with the access to the most info. Anyone telling you with certainty that they can predict whether variable or fixed is better in this situations is lying.

[Azure]

Food inflation is insanely high, but how much of it is tied to fuel prices, and will be slower to respond to actual fuel prices falling quite a bit the last few months?

Most of the farmers I know are selling crops at record prices, though some pricing has come down. Hard to see food taper off right now.

[opendoor]

Originally Posted by blankall

You have to keep in mind that banks employ people full time to come up with those rates. The people doing this are the best and brightest in their field with the access to the most info. Anyone telling you with certainty that they can predict whether variable or fixed is better in this situations is lying.

It's true that you can't reliably predict where rates will go, but it's also important to remember that lenders aren't really setting the rates either. Variable rates are tied to the Bank of Canada policy rate and fixed rates are tied to bond yields (plus a risk premium). Both tend to move with one another, but not always. So because its bond investors who are effectively setting fixed-rate mortgage rates, other factors can come into it (e.g. what kinds of returns other assets are generating, how likely a recession is, etc.) that influence the fixed rates but that may not directly impact central bank rates. So there are times where fixed rate mortgages are available at lower rates than variable ones which can make them a more attractive prospect than they normally are.

Personally I just wish we had the US system. A 30-year fixed mortgage that you can renegotiate whenever you want would be pretty nice.

[shermanator]

What we are seeing now has always been the risk with variable rate mortgages. The issue is that for the last 15 years variable rate would have been the better option given the incredibly low interest rates available.

I think that some people believed that these historically low interest rates would continue to be the better option and a lot of them are getting burned as a result.

[InternationalVillager]

Two words:

Wealth Destruction

Four words:

They giveth. They taketh.

[flamesfever]

What worries me the most are labor costs. When we see a shortage of workers, people bargaining to work at home, unions becoming more aggressive, it seems to me that a large number of people are oblivious of the potential for recession and a shortage of jobs.