*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[The Fonz]

I ran a search and couldn't seem to find a thread specific to this subject, but feel like it's important to the vast majority of our finances (variable rate loans).

On June 1, the BOC increased it's benchmark interest rate by 50 basis points to 1.5%, and signaled more increases are on the way.


https://www.cbc.ca/news/business/ban...sion-1.6473469

"...While the cost of living is already at its highest rate in 30 years, the central bank says it doesn't think things have peaked just yet, saying in a statement on Wednesday that inflation "will likely move even higher in the near term before beginning to ease."

...The hike brings the bank's rate within a quarter of a point of the 1.75 per cent level it was at before the pandemic, and the bank made it clear in its statement that several more rate increases are planned.
"With inflation persisting well above target and expected to move higher in the near term, the [bank] continues to judge that interest rates will need to rise further," the central bank said in a statement."


For reference on where today's 1.50% benchmark puts us, here are the last 10yrs:

Dec 2014 = 1.25%
Jan 2015 = 1.00%
Jul 2015 = .75%
Jul 2017 = 1.00%
Sept 2017 = 1.25%
Jan 2018 = 1.50%
Jul 2018 = 1.75%
Oct 2018 = 2.00%
Mar 2020 = .50%
Apr 2022 = 1.00%
Jun 2022 = 1.50%
Jul 2022 = 2.50%
Sept 2022 = 3.25%
Oct 2022 =3.75%
Dec 2022 = 4.25%
Jan 25 2023 = 4.50%
Mar 8 2023 = 4.50%
Apr 12 2023 = 4.50%
Jun 7 2023 = 4.75%
Jul 12 2023 = 5.00%
Sept 6 2023 = 5.00%
Oct 25 2023 = 5.00%
Dec 6 2023 = 5.00%
Jan 24 2024 = 5.00%
Mar 6 2024 = 5.00%
Apr 10 2024 = 5.00%
Jun 5 2024 = ?
Jul 24 2024 = ?
Sept 4 2024 = ?
Oct 23 2024 = ?
Dec 11 2024 = ?

[Fuzz]

Spoiler!

https://www.cbc.ca/news/business/ban...sion-1.4742063

Looking back a bit further.

[The Fonz]

https://www.bnnbloomberg.ca/bank-of-...ange-1.1773738

Bank of Canada sees higher odds of rates over 'neutral' 3% range

The policy rate may now go to the top, or even above, what the Bank of Canada considers its “neutral range,” estimated at between 2 per cent to 3 per cent.

...“This raises the likelihood that we may need to raise the policy rate to the top end or above the neutral range to bring demand and supply into balance,” Beaudry said in prepared remarks of the speech provided to journalists. He was speaking in Gatineau, Quebec.

...Half point increases are now fully priced in for policy meetings scheduled in July and September, with traders seeing the rate maxing out at about 3.25 per cent.

...“We see this aspect of potentially needing to go higher than we thought before and we still have the idea that we want to get there as quickly as possible so that could involve doing more moves in a row or it could involve bigger moves,” he said.

...“The bottom line is that the risk is now greater that inflation expectations could de-anchor and high inflation could become entrenched,” Beaudry said.

[GGG]

What’s interesting about inflation is that a lot of it is attitude. If people think there will be inflation inflation is much more likely and in general the cure to inflation is people thinking inflation will go down in the future.

So these actions need to solve the technical issues of low productivity and increased energy prices creating an over supply of money and the strong language against inflation is designed to attack the psychological side.

[blankall]

Originally Posted by GGG

What’s interesting about inflation is that a lot of it is attitude. If people think there will be inflation inflation is much more likely and in general the cure to inflation is people thinking inflation will go down in the future.

So these actions need to solve the technical issues of low productivity and increased energy prices creating an over supply of money and the strong language against inflation is designed to attack the psychological side.

I'd say there a bunch of objective factors that are all contributing to inflation:

1. Housing shortages;
2. Supply chain issues. Shortage of consumer goods, food, building materials, etc..;
3. Increased fuel prices; and
4. Flooding Canada with an increased currency supply for the last 2 years.

[Mr.Coffee]

You forgot corporate greed

[Mickey76]

Originally Posted by GGG

What’s interesting about inflation is that a lot of it is attitude. If people think there will be inflation inflation is much more likely and in general the cure to inflation is people thinking inflation will go down in the future.

So these actions need to solve the technical issues of low productivity and increased energy prices creating an over supply of money and the strong language against inflation is designed to attack the psychological side.

Have you been grocery shopping lately or filled your car? They are 25-50% higher then pre pandemic. No amount of thinking will change that.

[Enoch Root]

Originally Posted by Mickey76

Have you been grocery shopping lately or filled your car? They are 25-50% higher then pre pandemic. No amount of thinking will change that.

Yes, we can all see the price increases that are all around us, but that isn't the point. GGG is talking about ongoing inflation - it can become habitual, and then everyone keeps raising prices simply because prices keep going up. That is the situation that needs to be avoided.

[GGG]

Originally Posted by Mickey76

Have you been grocery shopping lately or filled your car? They are 25-50% higher then pre pandemic. No amount of thinking will change that.

So sound like “technical issues of low productivity and increased energy prices” but as the second year of inflation starts peoples expectations of inflation will drive inflation.

[CliffFletcher]

Originally Posted by blankall

I'd say there a bunch of objective factors that are all contributing to inflation:

1. Housing shortages;
2. Supply chain issues. Shortage of consumer goods, food, building materials, etc..;
3. Increased fuel prices; and
4. Flooding Canada with an increased currency supply for the last 2 years.

Households were also sitting on unprecedented savings due to reduced consumption during covid, and that money is now being fed into the economy. Hard to say how long it will take that spending to wind down.

[Bill Bumface]

Originally Posted by Enoch Root

Yes, we can all see the price increases that are all around us, but that isn't the point. GGG is talking about ongoing inflation - it can become habitual, and then everyone keeps raising prices simply because prices keep going up. That is the situation that needs to be avoided.

For inelastic goods, sure, but for elastic goods we already see people putting off purchases. Demand will eventually fall with enough inflation.

[GGG]

Originally Posted by Bill Bumface

For inelastic goods, sure, but for elastic goods we already see people putting off purchases. Demand will eventually fall with enough inflation.

That’s one option if people believe that prices will stabilize. The other is demand increases because people believe prices will be even more expensive tomorrow.

[iggy_oi]

Originally Posted by Mr.Coffee

You forgot corporate greed

Commie

[Bill Bumface]

Originally Posted by GGG

That’s one option if people believe that prices will stabilize. The other is demand increases because people believe prices will be even more expensive tomorrow.

People will run out of money, and their capacity to borrow is dropping with the increasing interest rates. That happens, but is fairly short lived unless wages are somehow keeping up (in which case, people will also stop buying fearing future price increases, as it becomes normalized).

[bizaro86]

Originally Posted by Bill Bumface

People will run out of money, and their capacity to borrow is dropping with the increasing interest rates. That happens, but is fairly short lived unless wages are somehow keeping up (in which case, people will also stop buying fearing future price increases, as it becomes normalized).

If wages are keeping up it is 100% rational to do as much spending as you can as soon as you can. If that 30k car is going to be 34k next year, buying it now makes sense even if rates are high.

Once enough people start doing that it effectively increases the supply of money because the velocity of money is much higher.

[opendoor]

Originally Posted by bizaro86

If wages are keeping up it is 100% rational to do as much spending as you can as soon as you can. If that 30k car is going to be 34k next year, buying it now makes sense even if rates are high.

Once enough people start doing that it effectively increases the supply of money because the velocity of money is much higher.

But if people are buying that car on credit, rising interest rates will mean fewer people will be able to afford that car at $34K which will tend to depress the price as it will bring demand more in line with supply.

[bizaro86]

Originally Posted by opendoor

But if people are buying that car on credit, rising interest rates will mean fewer people will be able to afford that car at $34K which will tend to depress the price as it will bring demand more in line with supply.

Right, that is why they raise interest rates to combat inflation. But inflation expectations are a powerful force that increases future inflation - so if they become intrenched interest rates will need to rise much higher than otherwise.

[Enoch Root]

Originally Posted by bizaro86

Right, that is why they raise interest rates to combat inflation. But inflation expectations are a powerful force that increases future inflation - so if they become intrenched interest rates will need to rise much higher than otherwise.

Stagflation. Which is what we had in the 70s, because they didn't attack inflation diligently enough. Then it got entrenched. Then high interest rates hurt the economy, but we still had inflation.

Everyone learned that lesson the first time. That is what cannot happen. So attack inflation quickly.

[Bill Bumface]

Originally Posted by bizaro86

If wages are keeping up it is 100% rational to do as much spending as you can as soon as you can. If that 30k car is going to be 34k next year, buying it now makes sense even if rates are high.

Once enough people start doing that it effectively increases the supply of money because the velocity of money is much higher.

I guess for any large purchase that requires saving vs. things bought out of a monthly paycheque that makes total sense. Buy as quick as you can, as your savings will get inflated away, even though you'll be making more in the future.

In the scenario wages aren't keeping up, doesn't affordability kick in and people just can't buy stuff anymore and you start to get supply increases and price drops?

[Shazam]

Originally Posted by Bill Bumface

I guess for any large purchase that requires saving vs. things bought out of a monthly paycheque that makes total sense. Buy as quick as you can, as your savings will get inflated away, even though you'll be making more in the future.

In the scenario wages aren't keeping up, doesn't affordability kick in and people just can't buy stuff anymore and you start to get supply increases and price drops?

Deflation never occurs.