Interest rate signs point up
As expected the Bank of Canada has boosted its trend-setting overnight rate by a quarter of a percent to 1.75%. It is the 5th hike since rate increases began in mid-2017. The bank rate is now above 1.5% for the first time since December 2008.
The central bank has also signaled its intention to continue raising rates. In the statement that accompanied the October 24th setting the Bank dropped the word “gradually” from its description of the pace of future increases.
That change has some market watchers forecasting that the BoC is planning a string of consecutive increases, which could start as early as December. The Bank also says its rate will have to rise to its “neutral stance” in order to keep inflation in check. Right now the Bank estimates “neutral” as being 3%. A “neutral” rate is one that is neither stimulating nor supressing the economy.
The central bank also addressed one of its key concerns about the Canadian economy: the imbalance in the household debt-to-income ratio. It still stands at about 170%, or $1.70 of debt for every $1.00 of take-home pay. However, the Bank says those imbalances – while still elevated – are edging lower as Canadians make adjustments to earlier interest rate increases and tougher mortgage rules.
The Bank expects consumer spending to remain strong, but says it will be supported by rising wages and confidence rather than low interest rates and debt.
