Personal, government budgets to be affected by BoC interest rate hike: economist
Posted December 6, 2022 2:45 pm.
Last Updated December 7, 2022 6:28 am.
Already-tight budgets are about to get even tighter across the board as another Bank of Canada (BoC) interest rate hike is expected Wednesday.
Senior economist with the Canadian Centre for Policy Alternatives Marc Lee says the rise will either be 0.25 per cent or 0.5 per cent.
“I calculated that it’s the equivalent to like, a two per cent hit to our gross domestic product, so it’s substantial,” he told CityNews.
Read More: Consumer debt tops $2.36 trillion in third quarter in Canada: Equifax
Lee says when you add the expected rise Wednesday to interest rate increases throughout this past year, someone with a $500,000 variable rate mortgage will pay an extra $20,000 in annual interest.
“The housing market’s not going to pick up any time soon with these kinds of interest rates. Those interest rates also make it more expensive to build new rental housing that we so badly need. It makes it more expensive for businesses to invest and get production going,” he said.
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Following the expected rise, Lee anticipates another hike from the central bank in January, which he says could affect government budgets come spring.
“The B.C. government and the federal government should be considering running deficits to sort of inject money into the economy to counteract the fact that households and businesses that are holding back,” he said.
With inflation and the cost of living taking a bigger toll on people’s bottom lines, Lee says economists are keeping a close eye on what the BoC hikes could mean.
“The big question that a lot of economists are asking right now is, ‘is the bank tightening too much too quickly, and does this kind of unbalance shift us to a recession in 2023?'” he noted.
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Lee says the spike in the new year could be the last one Canada sees for a while.
Wednesday’s anticipated hike will mark the seventh consecutive time in 2022 the Bank of Canada has bumped the key interest rate. A 50-basis-point increase will put the key interest rate at 4.25 per cent.
