The Bank of Canada hiked its trendsetting interest rate by three-quarters of a percentage point on Wednesday, the latest move by the central bank in its mission to rein in runaway inflation.
After slashing its rate to near zero in 2020 to help stimulate the economy in the early days of the pandemic, Canada’s central bank has moved aggressively to raise lending rates to try to cool red-hot inflation, which has risen to its highest level in decades.
The bank’s rate impacts the rates that Canadian consumers and businesses get from their banks on things like mortgages, lines of credit and savings accounts.
At the start of the year, the bank’s rate was 0.25 per cent. After Wednesday’s move, it’s now at 3.25 per cent. That’s the highest level for the bank’s rate since early 2008, before the financial crisis.
While Canada’s inflation rate eased somewhat last month from its 30-year high of 8.1 per cent, the bank noted in its decision that most of that decline was due to gas prices, while the rest of the economy still saw “a further broadening of price pressures, particularly in services.”
That persistent underlying inflationary pressure is a big reason why “the policy interest rate will need to rise further,” the bank said, noting that it “remains resolute in its commitment to price stability and will continue to take action as required to achieve the two per cent inflation target.”
The move was widely expected by economists who monitor the bank. While the bank has now hiked its rate five times this year, economists think even more rate hikes are coming before the end of this year.
‘Aggressive’ series of hikes
Jimmy Jean, vice-president and chief economist with financial services conglomerate Desjardins Group, says the bank is making it crystal clear that it is committed to raising lending rates for as long as it takes to get inflation back down to below three per cent.
Five large rate hikes in barely six months, “by any historical standard is a very aggressive tightening cycle, but what the bank is saying today is that this is not over,” Jean said in an interview with CBC News on Wednesday.
Jean says it typically takes up to two years for the impact of higher rates to be fully felt in the economy, which means he thinks high rates will stick around through 2023 at least, even if they come at a cost of tipping the economy into recession.
“We’re already having the highest interest rates we’ve had since 2007 and it’s going to be very difficult to think that this won’t have a high impact on consumer budgets and even possibly on things like insolvencies,” he said.
WATCH | Expect even more rate hikes to come, economist says:
The move will mean anyone with a variable rate loan is likely to see their payment change in the coming days to keep up with the central bank’s move. Two of Canada’s biggest banks, RBC and TD, raised their prime lending rates by the same amount the central bank did, effective Thursday. The others are expected to quickly follow suit.
Many mortgage holders have already felt those increases multiple times this year, as rates on variable rate loans have moved from below two per cent at the start of the year to in excess of four and in some cases five per cent today.
‘Trigger rate’ imminent for many loans
A large group of Canadian borrowers that has so far been relatively immune from rate hikes will feel this one, however, because of how those loans are structured.
Most variable rate mortgages give borrowers the option to keep their payment fixed, even if the rate changes. As interest rates increase, the amount of each payment that goes to paying down the principal gets reduced, while more and more goes toward the interest. That extends the length of the loan, even as the size of the regular payment doesn’t increase.
Eventually, that spread becomes so large that the loan payment becomes interest-only, at which point the payment terms have to be adjusted. It’s known as a trigger rate and “every mortgage broker in Canada and every bank … is getting a constant barrage of calls,” about it right now, mortgage broker Ron Butler says.
The exact point a mortgage will be triggered will depend on the loan, but with rates increasing so far and so fast, many of them either already have tripped over the line or are about to.
Butler says as recently as six months ago, it wasn’t hard to get a loan charging about 1.5 per cent. But with five large rate hikes since March, that same loan today is now charging four per cent or likely more.
At that point, the original loan payment isn’t even enough to cover the interest portion — never mind paying down the balance a little.
“Clients who have a variable rate mortgage that have a static payment are worried that eventually they will hit a trigger point in their contract and their payments will increase,” Butler said.
‘I really have to buckle down’
Debbie Henry is one of them. Henry, who lives in the Toronto area, took out a variable rate loan in November of last year, that came with a fixed payment of $805 every two weeks. While her payment hasn’t changed yet, she is aware that her loan has a trigger point, and she’s worried she may soon cross it.
As things stand, she says she thinks her mortgage payment is effectively going entirely to the interest portion, and not paying down any principal at all.
“If it’s at that trigger rate I really have to buckle down,” she told CBC News in an interview. “I don’t want to be anxious about the mortgage because one way or another it’s going to get paid.”
Anshu Khanna has a fixed payment on a variable-rate loan for a property she owns in downtown Toronto, and she says her trigger rate hasn’t been activated yet.
“If it keeps going to a point where they have to raise the actual monthly payment then it’s going to start to pinch for sure,” she told CBC News in an interview. “We’ll see what happens.”
It’s hard to tell exactly how many people are in the same boat, but data from the Bank of Canada suggests that roughly one third of all mortgages in Canada are variable rate loans, but within that, two-thirds of them have a fixed payment.
Canada’s biggest lender, the Royal Bank of Canada, estimated last week that it has about 80,000 home loans on its books that are soon to hit their trigger point. “Our records indicate you may be approaching your Triggering Interest Rate — a moment when your regular payment is no longer enough to cover the interest portion on your mortgage,” the bank told some of its mortgage holders in a recent letter obtained by CBC News.
“If this event occurs, your mortgage payment will automatically increase,” the letter said.
Of those affected, the average payment is likely to increase by about $200 a month, the bank’s chief risk officer Graeme Hepworth said on a call with financial analysts last month to discuss the bank’s quarterly results.
Canada’s economic activity creeps up, unexpectedly – Al Jazeera English
The economy grew 0.1 percent in July, compared with a forecast for a 0.1 percent decline, but inflation persists.
Canada’s economic activity unexpectedly edged up in July, data shows, while gross domestic product (GDP) in August was most likely flat, with the surprise gain seen unlikely to change much for the central bank.
The Canadian economy grew 0.1 percent in July, compared with analysts’ forecast for a 0.1 percent decline, Statistics Canada data showed on Thursday. Growth in goods-producing industries more than offset the first decrease in services-producing industries since January.
“The economy fared better than anticipated this summer, but the showing still wasn’t much to write home about,” Royce Mendes, head of macro strategy at Desjardins Group, said in a note.
The slight gain in July and likely lack of growth in August suggest third-quarter annualised GDP growth of about 1 percent, well below the Bank of Canada’s most recent forecast of 2.0 percent, analysts said.
“After a solid first half of the year, momentum appears to be slowing as multi-decade-high inflation and rapidly rising interest rates weigh on the economy,” Benjamin Reitzes, Canadian rates and macro strategist at BMO Economics, said in a note.
The Bank of Canada raised rates by 75 basis points to 3.25 percent earlier this month to fight inflation, which began to cool slightly in July, but is still running at levels not seen in nearly 40 years.
The July GDP data showed oil sands extraction drove growth, jumping 5.1 percent on higher output, with crop production also helping, up 7.2 percent mainly on volumes of wheat and other grains.
Demand for Canadian wheat has increased since Russia’s February 24 invasion of Ukraine, which Moscow calls a special military operation, helping push up export volumes.
But Canada’s retail trade sector contracted sharply in July, falling to its lowest level since December 2021, pushed down by a 7.1 percent decline in output at petrol stations, Statscan said, though that likely reversed in August.
Accommodation and food services also contracted in July, driven by less activity at bars and restaurants.
Hot inflation meant the Bank of Canada was likely to increase interest rates at its next decision in late October, but then the game may change, economists said.
“The deceleration in economic momentum is why we see the Bank of Canada only hiking rates once more in October,” Mendes said. Money markets are betting on a rise in October, with one more in December or January to bring the central bank’s policy rate to 4.00 percent.
Canada matching more donations for Pakistan flood aid, will raise cap to $5M – CTV News
The federal government will extend its matching of donations to help people dealing with catastrophic flooding in Pakistan in hopes the crisis doesn’t fall off the public radar.
“I felt that it wasn’t getting the (media) coverage that a crisis like this deserves,” International Development Minister Harjit Sajjan said in a Thursday interview.
Severe monsoon rains this summer have affected more than 33 million people, many of whom have needed emergency food, water, sanitation and health services.
More than one-third of Pakistan was underwater, including much of its agricultural land, which experts believe will spark a food shortage.
Sajjan said he saw devastating scenes on a visit to the country earlier this month.
“When I was flying over affected areas, you literally could not see the end,” he said.
“Countries that have had the least to do with contributing to climate change are actually now the most greatly affected by it.”
On Sept. 13, Prime Minister Justin Trudeau announced the federal government would match up to $3 million in donations made to the Humanitarian Coalition and its dozen member charities.
That matching campaign was due to end on Wednesday.
Sajjan said it will be extended, and the amount is now capped at $5 million.
Ottawa previously committed $30 million of its own spending.
Sajjan said the idea has been to respond to the immediate, interim and long-term needs of the country, to make sure the right amount of aid dollars reach the correct places.
“What we’re doing is funding in chunks, to make sure we’re assessing the needs in a timely basis so the resources can be there,” he said.
“Now we that we have a little bit of breathing space, we are looking at the midterm need assessment.”
Canada will likely fund climate mitigation work in the country once it has recovered, to lower the impact of future floods, Sajjan said.
He noted that Canada helped fund the early-warning system that officials told him was key to saving lives this summer.
That came after massive 2010 floods in Pakistan.
Within a year, the former Harper government pledged $71.8 million for relief efforts, including $46.8 million from donations Ottawa had matched.
When asked why Canada is only matching slightly more than one-tenth that amount, the Humanitarian Coalition said the funding is in line with cost-matching in past crises such as the 2021 earthquake in Haiti.
“To be sure, the match amount is modest, but it does fit within a recent range,” wrote spokeswoman Marg Buchanan.
She said the amounts are based on what humanitarian groups predict people will donate, “influenced by timing, waning media interest and other dominant stories.”
NDP development critic Heather McPherson argued the Liberals have been slow to put up the funding promised for other humanitarian initiatives.
She pointed to unspent funds in Ukraine and for reproductive health elsewhere.
“Their announcements are starting to be a little slim; I don’t think people are feeling very reassured,” McPherson said.
The Conservatives have called on the government to allow cost-matching for more organizations responding to disasters, including the flooding in Pakistan.
“It is easier (for Ottawa) to say that it is going to match a contribution to this big player, as opposed to saying it is going to match donations to all of the organizations that are doing this work,” Garnett Genuis told the Commons this week.
“Organizations tell me that they get calls from previous donors who say they were going to donate to what they were doing, but they actually want to donate to another organization that is getting matched.”
This report by The Canadian Press was first published Sept. 29, 2022.
GOVERNMENT FAILURE TO RESPECT SEX WORKERS’ HUMAN RIGHTS FORCES SEX WORKERS BACK TO COURT
Sex Worker Legal Media Briefing: Monday, October 3, 2022, 1pm, 330 University Avenue (Ontario Superior Court)
September 29, 2022 – The Canadian Alliance for Sex Work Law Reform — an alliance of 25 sex worker led groups representing thousands of sex workers across the country — along with several individual applicants, is going back to court to challenge sex work laws next week. The Protection of Communities and Exploited Persons Act (PCEPA) introduced in 2014 has failed to protect sex workers and has caused grave human rights violations. In 2014, the Liberal government promised to repeal PCEPA; 7 years later they have failed to act and sex workers have been forced to work in the context of criminalization causes harm to their lives.
“Taken individually and together, the PCEPA provisions reproduce harms of the criminal laws struck down in Canada v. Bedford and causes new harms to all sex workers,” says Jenn Clamen, National Coordinator of the Canadian Alliance for Sex Work Law Reform (CASWLR) speaking at a media briefing this morning. “We don’t want to be going to court again, it is a waste of precious community resources and time. This government can put an end to this by proposing a Bill for total decriminalization of sex work that would save lives and protect sex workers’ human rights. The harms of these provisions are extensively documented in our evidentiary record, which includes academic and community research on the experiences of Indigenous, Black, racialized, trans, and migrant sex workers across the country, many of whom work in some of the most difficult conditions.”
Sex worker rights organizations are seeking to strike down criminal prohibitions on sex work arguing they violate sex workers’ human rights to dignity, health, equality, security, autonomy, and safety of people who work in the sex industry, which includes their right to safe working conditions.
Before PCEPA became law, sex workers warned of the dangers of criminalization; the Liberal, NDP, and Green Party rejected the PCEPA as it moved its way through the House of Commons. Once passed, however, there has only been government inaction and many expected harms to sex workers’ lives.
This is the first constitutional challenge to PCEPA provisions initiated by sex workers, and the first to challenge all the provisions individually and together arguing they violate sex workers’ human rights to dignity, health, equality, security, autonomy and safety of people who work in the sex industry, which includes their right to safe working conditions. Public hearings at Superior Court begin on October 3rd and continue throughout the week.
For more information about the case: http://sexworklawreform.com/wp-content/uploads/2022/09/Infosheet-ENG.pdf
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