Wednesday’s rise in the Bank of Canada’s key rate, which ranged from 1% to 1.5%, could weigh heavily on Canadian households, economist and independent senator Clément Gignac believes. According to him, we still need to “expect higher rates” in the coming months.
But for households, it can have a financial impact. Some took out massive mortgages last year, and it may be more difficult in case they choose variable rates., thinks Mr. Gignac. Their monthly payments cost them more, he added.
For a $ 300,000 mortgage, a 0.5 percentage point increase represents an increase of $ 90 per month-or about $ 1,000 more per year. But three increases of 0.5 percentage points in interest rates will represent, for the same variable rate mortgage loan, over $ 3000 in budget household per year, Mr. Gignac explained.
” Currently, people and governments owe more, and every percentage point has a bigger impact. “
He remembered, however, that if Canadian households are more in debt [ils] with more property, they almost became rich during the pandemic. So their houses rose in value, and their stock market portfolio was taken [aussi] a lot of valuehe believes.
However, if households are richer than three years ago, this is not the case for everyone, argument by Mr. Gignac. Wednesday’s increase in the Bank of Canada’s key rate could make their situation quite difficulthe continued.
His main concern is that if the Bank of Canada raises interest rates too vigorously, it could lead to a recession. In this case, many Canadians can do disappear [leur] work, and there it is [qu’ils auront] money problemsargument of Mr. Gignac.
The Bank of Canada is late
Clément Gignac explained that three elements are motivating the Bank of Canada to significantly raise the core rate.
First, 70% of price categories in the consumer price index see an increase of more than 3%. Then, wage growth accelerates. Finally, the economy is in a situation of extreme demand, Mr. Gignac recalled.
These three elements justify, according to Mr. Gignac, the action of the Bank of Canada-which should not hesitate to raise interest rates. But the central bank is it’s too late because he has wrong about inflation in his prophecies. So he should put double bite.
Note that the base rate should be around 2.5%, which is the neutral rate, because we have an economy running at full speed. [et la Banque du Canada] will act with greater force to be respected [son] command, said Mr. Gignac. The Bank of Canada’s inflation target is 2%.
Rising inflation to 6.8% in April has had a lot of impact on Canadian consumers, who pay more for the products they buy.
” if [la Banque du Canada] We want to curb the economy, we can go to 3% or 3.5%, and therefore, we are not out of the inn. “
Mr. Gignac argues the risks of stagflation and recession in the event of an excessive increase in interest rates.
With the key rate hike on Wednesday, Mr. Gignac indicated that the Bank of Canada allowing for more marked increasesand at the next meeting on July 13, he sets the table for a 75 basis point increase.
In the USA, if the Federal Reserve goes in the same direction [que la Banque du Canada]this could mean slightly more volatile markets, and some sectors will be affected more harder than others, such as the residential sector.continued Mr. Gignac. Obviously this will greatly affect residential growth.
Pretty fresh air
Mr. Gignac believes that governments help the poorest households. The idea of [leur] help with a check for $ 500 [est] a good idea. However, he points out that is what the Legault government did in its final budget helped everyone, including [les ménages] to earn nearly $ 200,000.
If other help is to be put in, it should target low -income people because they are the most [touchés] by inflation. Mr. Gignac mentioned the value of groceries and gas in the consumer basketand it represents a larger weight for less affluent households.
” Governments have a role to play, but they need to be more targeted if they want to help households with inflation. “
In New Brunswick, the Blaine Higgs government announced earlier this week that it would issue checks for $ 450 to families and $ 225 to single people to help them cope with inflation.
In Quebec, Premier Legault mentioned the possibility of a new tranche of aid for households later this fall, but it will be conditional on his government’s re -election on October 3, the opposition accuses him of wanting to buy the elections.
Source: Radio-Canada
