In a vacuum, central banks slash interest rates to encourage borrowing and investing to stimulate a sluggish economy, and they raise rates when they want to cool down an overheated economy.
Just as many other countries did, Canada reduced lending rates in the early days of the COVID-19 pandemic. But those record-low borrowing rates have contributed to rising inflation, which is what’s prompting the central bank to change direction.
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.
The bank’s decision will increase borrowing rates for variable rate loans such as mortgages and other lines of credit.
John Marsh, the owner of Elecompack Systems Inc., an office supply store in Oakville, Ont., has variable rate loans attached to his business and says higher interest rates are starting to bite. (Craig Chivers/CBC)
That’s going to impact people like John Marsh, the owner and operator of Elecompack Systems Inc., an office supply store and label maker based in Oakville, Ont.
When the pandemic hit, Marsh said, he saw his sales plunge by about 40 per cent, so like many business owners, he borrowed some money to stay afloat to ride out the storm. While he’s pleased his business is now turning a profit again, this week’s rate hike will stretch his budget even further.
“I have several loans with a variable rate, and every time the rate changes, it has an impact on us,” he told CBC News in an interview.
Marsh estimates that Wednesday’s 50-point hike will probably raise his debt payments by a few hundred dollars a month. “It’s going to be at least six years before we recover fully,” he said. “Anything right now that makes it harder to recover is not a good thing.”
Impact on housing market
While consumers and businesses with variable rate debt will feel the higher rates, the biggest impact will likely be on Canada’s housing market.
Cheap lending rates fuelled a breathtaking rise in Canada’s housing market during the pandemic, but the wind appears to be coming out of its sails of late as the central bank signals the era of cheap money is coming to an end.
WATCH | Higher rates means it’s time to pay down debt, personal finance expert says:
What the Bank of Canada’s rate hike means for you
14 hours ago
Duration 6:28
Personal finance expert Kelley Keehn says the Bank of Canada’s decision to raise interest rates will make life even more expensive in the short term, so it’s time to start paying down debt.
The national average house price has fallen for two months in a row and is expected to fall further. While that’s obviously concerning for sellers and potentially good news for buyers, Toronto mortgage broker Samantha Brookes said absolutely everyone will be impacted by this week’s rate hike, no matter what part of the market they are in.
While lower prices may help buyers, many are finding that their mortgage will cost more than they expected, she told CBC News in an interview.
“These low rates are now gone, they’re totally off the table,” Brookes, the CEO of Mortgages of Canada, said, “and people just have to be more aware of how much this is going to increase their cost per month.”
Similarly, owners who had banked on a king’s ransom when selling their home are having to adjust their expectations downward, but even those with no plans to sell are feeling the pinch.
Toronto mortgage broker Samantha Brookes, the CEO of Mortgages of Canada, says both buyers and sellers will be impacted by this week’s interest rate hike. (Craig Chivers/CBC)
Brookes gives the example of owners who bought years ago when mortgage rates of one or two per cent were easy to find. Today, those owners’ mortgages are up for renewal, “and the interest rates are in the four per cent range, [so] they can no longer afford the mortgage,” she said.
Those owners are finding themselves having to stretch their mortgages over a longer time period to bring the monthly payment down to something they can afford. While the process of adjusting to higher rates will be painful, Brookes said it will be good for everyone in the long run.
“It’s time for us to start bringing those rates back to where they used to be,” she said.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
