*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Johnny199r]

I predict a .25% raise in rates. The target for inflation is 2% and we aren't anywhere near that yet.

Will be interesting to see if there is more movement in the real estate market in the near future. The increase in variable rates must be starting to hurt some people who didn't forsee their variable mortgages could ever increase and left themselves 0 financial wiggle room.

I also think there are a fair amount of potential buyers on the sidelines (especially in bigger cities) hoping the knife continues to fall.

[Harry Lime]

Renewing today. The cheapest option is an 18% increase and my best option to retain control over a possible sale without porting is a 30% increase. Good times.

[bizaro86]

Originally Posted by pseudoreality

I disagree. That is not a good analogy. Nelson's intent is for Milhouse to be hit and he has no other considerations. Raising the overnight target rate has the side effect of raising variable rate mortgages, but that's not why they are doing it or even factoring into the decision much. Also, the majority of mortgages are fixed anyway. The Bank of Canada isn't sitting around a table debating on whether they should raise people's mortgages.

The Bank of Canada is trying to reduce aggregate economic demand. There are three types of borrowers.

Individuals, corporations, and the government. The first two groups are (in aggregate) each much larger borrowers than the government. And the government isn't likely to spend less on consumption due to interest rate hikes - it'll just increase borrowing so its demand is mostly unaffected in the medium term.

Corporations also have slower feedback to the economy than individuals for lots of reasons. Longer term projects (ie, once you start building a new factory/mine/data centre you mostly finish it) with annual budgets being the big one. Corporations also make capital spending decisions mostly based on their weighted average cost of capital, with a relatively high mix of equity to debt compared to households, so are on average less sensitive to debt costs.

Individuals are the most sensitive to interest rates, with new and existing mortgages/LOCs and new car loans being the primary mechanism. The BoC would probably prefer the pain (aka reduction in consumption demand) be spread around more evenly, but they wouldn't exclude mortgages from the rate hikes even if that was possible.

So while they aren't as mean-spirited as Nelson, I think the analogy is a reasonable one. The BoC knows full well raising their rate raises mortgage rates, it's one of the main feedback loops they're counting on to reduce demand to fight inflation.

[Muta]

I was one of those suckers that renewed in January 2022 with a variable. Sigh.

[Mazrim]

Originally Posted by Johnny199r

I also think there are a fair amount of potential buyers on the sidelines (especially in bigger cities) hoping the knife continues to fall.

I guess I can technically say I've been on the sidelines as a buyer since I'm still looking, but I've been active and still seeing some houses disappear in a couple days with cash only, no conditions offers.

[Weitz]

Originally Posted by Muta

I was one of those suckers that renewed in January 2022 with a variable. Sigh.

Assuming you went 5 years just hold on for a year and likely heading down. At least that’s how banks have them priced from what I see. Also looked in my crystal ball…

[iggy_oi]

Originally Posted by Weitz

Also looked in my crystal ball…

Any lotto numbers you’d care to share? Asking for a friend

[Muta]

Originally Posted by Weitz

Assuming you went 5 years just hold on for a year and likely heading down. At least that’s how banks have them priced from what I see. Also looked in my crystal ball…

I went three years, the penalty costs are also lower with a variable; I also don't like committing long term to mortgages in case my employment situation changes (let go, maybe take an opportunity in another country, etc.). While the rate increases from the BoC were more numerous than I anticipated, I'm still hoping that variable wins out in the end (as all the research at the time indicated)...

[Weitz]

Yah fair. I’m up in about a year so been watching how things have been looking. Will be going shorter term as well.

[Azure]

Originally Posted by GGG

Raising interests raises LIBOR which increases corporate debt servicing costs which stops borrowing to pay dividends/buybacks and limits expansion. The same thing occurs on the personal income side:

The end result is people and businesses will buy less stuff.

The cause of inflation is excess money to chase goods. Corporations profiteering is a symptom of excess money chasing too few goods. (Wage growth is also a symptom of the same problem).

So until the supply chain is improved again we need to reduce the amount of money to stop corporate profiteering and wage growth which is driving inflation.

This is the theory.

The 'theory' doesn't work if you have corporate greed happening with food prices as an example.

[GGG]

Originally Posted by Azure

This is the theory.

The 'theory' doesn't work if you have corporate greed happening with food prices as an example.

That is independent if inflation. When food cost rises other spending gets cut so some other category drops.

Corporate Greed always happens Inflation is the current excuse. Claiming corporate greed drives inflation doesn’t really make sense. Corporate greed did not change before or after the pandemic. Loblaws was fixing the price of bread well before the pandemic became the current price raising excuse.

Now I agree that the Canadian oligopolies should be crushed and split and things like the Safeway / sobeys mergers were anti consumer. And you can certainly say that lack of competition drives prices higher than they otherwise would be. But given we have persistent global inflation throughout the world I think the much more simplistic answer of too much money chasing too few goods is more likely the current cause.

[Azure]

If you keep raising interest rates, but gas & food prices keep going up or don't come down, you can't possibly say that the reason for inflation is too much money chase too few goods.

It might be 50% of the reason.

The concern is that the BoC does not care about any other metric than inflation, and will go crazy trying to bring it down.

End of the day you can't use a hammer to solve a problem that requires many more tools.

[BlackArcher101]

Originally Posted by Azure

The concern is that the BoC does not care about any other metric than inflation, and will go crazy trying to bring it down.

Sadly they have said that really is their only goal/metric. Which is why they told employers not to hand out raises despite people needing them.

[opendoor]

Originally Posted by Johnny199r

I predict a .25% raise in rates. The target for inflation is 2% and we aren't anywhere near that yet.

We're not far off. Inflation in the last 6 months of 2022 was 0.13%, which is 0.26% annualized. If we continued at that pace we'd be at 2% annual inflation by April and sub-1% by May.

That's likely not going to happen, but even with higher month-over-month numbers, the annual number will likely drop pretty quickly in the first half of 2022 (barring a big resurgence in inflation).

Even if we see 0.3% inflation per month (about 3.7% annualized) over the next 6 months, here's what the annual number would look like:

January: 5.7%
February: 4.9%
March: 3.7%
April: 3.4%
May: 2.3%
June: 1.9%

[GGG]

Originally Posted by Azure

If you keep raising interest rates, but gas & food prices keep going up or don't come down, you can't possibly say that the reason for inflation is too much money chase too few goods.

It might be 50% of the reason.

The concern is that the BoC does not care about any other metric than inflation, and will go crazy trying to bring it down.

End of the day you can't use a hammer to solve a problem that requires many more tools.

If what your saying is the case why did we have decades of low inflation?

[blankall]

We're still seeing major supply chain issues.

For example, I can't find a vehicle and I'm on a waitlist for one to be shipped in. There was almost no room to negotiate the price down. It was take it at our price, or someone else will.

It took me months to order the necessary parts for my furnace. The cost of the technician was through the roof, and I had not choice but to pay him. Same thing when my drain go clogged. There were so few workers with the necessary equipment to unclog it.

On top of that, all sorts of global issues are influencing fuel prices.

I do think we are nearing the end of what interest rates can do to influence inflation.

[PeteMoss]

Originally Posted by blankall

We're still seeing major supply chain issues.

For example, I can't find a vehicle and I'm on a waitlist for one to be shipped in. There was almost no room to negotiate the price down. It was take it at our price, or someone else will.

It took me months to order the necessary parts for my furnace. The cost of the technician was through the roof, and I had not choice but to pay him. Same thing when my drain go clogged. There were so few workers with the necessary equipment to unclog it.

On top of that, all sorts of global issues are influencing fuel prices.

I do think we are nearing the end of what interest rates can do to influence inflation.

Pretty sure the vehicle thing is exactly what the interest rates are trying to influence. There was supply issues with chips but that is quickly fading as many electronics (PCs, etc) markets are being hit hard already. Companies are trying to catch up to the backlog from past supply issues, but raising interest rates also lowers the demand. https://europe.autonews.com/automake...023-some-risks

Barring another world changing event - inflation will be back to normal at the schedule opendoor posts above. Just looking at the container rates to ship from Asia to North America - they are down to basically pre-pandemic rates after increasing like 500% from 2020-2022.

[blankall]

Originally Posted by PeteMoss

Pretty sure the vehicle thing is exactly what the interest rates are trying to influence. There was supply issues with chips but that is quickly fading as many electronics (PCs, etc) markets are being hit hard already. Companies are trying to catch up to the backlog from past supply issues, but raising interest rates also lowers the demand. https://europe.autonews.com/automake...023-some-risks

Barring another world changing event - inflation will be back to normal at the schedule opendoor posts above. Just looking at the container rates to ship from Asia to North America - they are down to basically pre-pandemic rates after increasing like 500% from 2020-2022.

Vehicle price continue to rise, regardless of interest rates due to supply chain issues.

I obviously agree that interest rate changes are trying to influence prices. However, once again, they can only do so much if there isn't enough supply. It's the same issue with housing. You can increase interest rates all you want, but when there's a housing shortage rent is going to go up.

[Azure]

Originally Posted by BlackArcher101

Sadly they have said that really is their only goal/metric. Which is why they told employers not to hand out raises despite people needing them.

Not only that, but the labor market is tight, and therefore we should expect wage increases. Which again equals more money in the economy.

The BoC is being ridiculously tunnel visioned in their approach to this problem.

[jar_e]

Originally Posted by GGG

Raising interests raises LIBOR which increases corporate debt servicing costs which stops borrowing to pay dividends/buybacks and limits expansion. The same thing occurs on the personal income side:

The end result is people and businesses will buy less stuff.

The cause of inflation is excess money to chase goods. Corporations profiteering is a symptom of excess money chasing too few goods. (Wage growth is also a symptom of the same problem).

So until the supply chain is improved again we need to reduce the amount of money to stop corporate profiteering and wage growth which is driving inflation.

How does a supply chain issue (like groceries) affect that though? Higher cost of spending by corporations driven by an increasing rate just gets passed onto the consumer no?