Canada’s central bank continued its campaign to wrestle high inflation into submission on Wednesday, raising its benchmark interest rate by 50 basis points to 3.75 per cent.
The Bank of Canada’s rate — officially known as the target for the overnight rate — is the amount that retail banks are charged for short-term loans.
But it filters down into the economy by influencing the rates that Canadians get from their own lenders on things like savings accounts and mortgages.
After slashing its lending rate to near zero early in the COVID-19 pandemic, the bank has raised its benchmark rate six times since March, as it scrambles to rein in inflation, which has run up to its highest level in decades.
While the move will likely help bring down the cost of living in the long run by compelling Canadians to spend and borrow less, it will only increase the pain for consumers and businesses that are already feeling the pain of inflation and higher borrowing costs.
The bank was widely expected to raise its rate, as the country’s inflation rate is still more than twice as high as the range it likes to see. But the increase of 50 basis points is less than the 75 points that some economists and investors were anticipating.
How will this rate hike affect you?
On the streets of Toronto, Canadians told CBC News how the Bank of Canada’s decision to raise interest rates will impact their finances.
That could be a sign the central bank is nearing the end of its rate-hiking cycle, but in its statement, the bank made it clear that rates “will need to rise further.”
Karyne Charbonneau, executive director of economics at CIBC Capital Markets, said the bank’s decision to slow the pace of its rate increases means “we are getting closer to the end of the hiking cycle and … steps of 75 basis points are now behind us.”
But she thinks another half percentage point is likely coming, and “rates will have to stay at that level at least through the end of 2023 to help bring inflation back down to target.”
The goal of the bank’s rate hikes is to bring down demand for all kinds of goods and services that have seen a surge in recent months. The most direct impact of the increases so far has been on the mortgage market, where the price to borrow money has roughly tripled since February.
Generally speaking, a 50-point hike in the bank’s rate, such as the one announced on Wednesday, will add about $30 per month to every variable rate loan, for every $100,000 owed. As an example, a borrower who was paying 4.25 per cent on a standard $400,000 mortgage will see their monthly payment go from $2,159 before to $2,270 after, which works out to an extra $1,300 a year — and that’s on top of the five previous rate hikes this year.
Ahmad Syed and his wife, Hira Ahmad, recently purchased a home in Elmsdale, N.S. They were pre-approved for a variable rate mortgage in February and took possession in June, and say the speed at which the numbers have changed in six short months has taken their breath away.
Ahmad Syed, left, and his wife, Hira Ahmad, who recently purchased a home in Nova Scotia, say they’re shocked at the pace of increases to their mortgage rate. (Eric Woolliscroft/CBC)
Their home loan now costs them an extra $1,000 more every month than they had planned. And while they are keeping their heads above water for now, they’ve had to cut their other spending categories down to nothing, cancelling plans for a new car and rethinking travel plans.
“I’m not sure how the average Canadian is going to pay their mortgage now because if it keeps increasing like this, it will be very difficult,” Syed said.
They feel like innocent victims of the central bank’s fight against inflation. “Who is responsible for the inflation in the first place?” Ahmad asked. “Why should I be paying for all these mistakes? The Bank of Canada is punishing us for something that we didn’t do.”
Rate hike won’t help combat food inflation
Food prices have been a major source of pain for consumers of late, with grocery prices increasing at a pace of more than 11 per cent in the last year, according to the latest Statistics Canada numbers.
Many, including federal NDP Leader Jagmeet Singh, have put the blame for high food prices at the feet of corporate profiteering, using the term “greedflation” in a series of social media posts.
Derek Holt, vice-president and head of capital markets economics at Scotiabank, said that argument doesn’t add up, since food prices are up by far more in other countries than they are in Canada. “I know that food prices are high and rising and this is causing pain, but there are important macro drivers to consider that don’t make it quite as simple as playing the blame game and bashing corporations,” he said.
Interest rate hike less than expected but still ‘significant,’ says economist
Derek Burleton, chief economist for TD Bank, reacts to the Bank of Canada’s 50-basis-point interest rate increase and how high he anticipates it may go.
CBC News asked the central bank why Canadians should expect this rate hike to bring down food prices when the previous ones offered little relief in the grocery aisle, and senior deputy governor Carolyn Rogers said the bank is keeping a close eye on what extent food companies will pass on the cost savings they are starting to see in their supply chain.
“Our goal of getting the excess demand out of the economy … will help to restore the competitive pressure and will prevent retailers from from just passing through all the costs,” she said. “[It] will bring the competition back. That’ll put downward pressure on prices.”
‘No easy outs’
Bank officials made it clear in a press conference following the decision that they are trying to find a balance between doing too much versus too little to fight inflation. They acknowledged the task will be a difficult and possibly painful one.
“There are no easy outs to restoring price stability,” Bank of Canada governor Tiff Macklem said. “If we don’t do enough, Canadians will continue to endure the hardship of high inflation. And they will come to expect persistently high inflation, which will require much higher interest rates and potentially a severe recession to control inflation,” he said.
“Nobody wants that.”
Jimmy Jean, chief economist and strategist at Desjardins, said he expects the central bank to raise its benchmark rate again at its next policy meeting in December, but he’d be surprised if there are more beyond that.
“Right now, with inflation having peaked, it is … time to really hit the pause button and really be open to the possibility of having to roll back some of those hikes in 2023, if inflation moderates faster than expected or we see a recession that is perhaps more severe than we hoped for,” he told CBC News in an interview.
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.
