Canadians Want Bank of Canada to Stop Rate Hikes as Finances and Housing Take a Hit

With inflation at a 30-year high, Canadians are beginning to feel the financial pressure, with the cost of everything from food to fuel and housing forcing some to look for ways to cut costs.

To combat inflation pressures the Bank of Canada has started raising its key lending rates. But after just two rate hikes, cash strapped Canadians are asking the central bank to put a halt on future hikes.

Will The Bank of Canada Raise Its Rates Again in June?

In March 2020, the Bank of Canada slashed its rate to essentially zero when COVID-19 first hit. The move helped the Canadian economy weather the pandemic, but it also helped stoke decades of high inflation. This forced the central bank to step in and raise rates to tame inflation.

In March, the Bank of Canada raised its key lending rate, which impacts short-term interest rates, to 0.5%. It followed that move with a more aggressive 50-basis rate hike in April, the biggest increase in 22 years. This took the benchmark interest rate to one percent. Still exceptionally low, but significantly higher than where it was at the start of the year.

The next Bank of Canada meeting is on June 1 and a rate hike is “virtually guaranteed”. Analysts expect the central bank to hike its overnight rate by another 50 basis points to 1.50%. Tiff Macklem, the Governor of the Bank of Canada has said additional, oversized rate hikes will be needed to go above the neutral range of between two percent and three percent, to get inflation under control.

Rate hikes have only just begun and interest rates are still near record lows but it’s already starting to negatively impact the average Canadian.

How Do Canadians Feel about Their Finances?

Rising interest rates may be good for the financial sector, but its hurting homeowners and those with debt.

According to a recent survey from the Angus Reid Institute, nearly half (45%) of Canadians would rather the Bank of Canada pause its interest rate hikes at 1.0% than push up the cost of living. 

Just a quarter (27%) want the Bank of Canada to be more aggressive with its rate hikes while 13% say rates should go lower to protect the stock market from crashing further and to shield the housing market.

Almost a quarter of Canadians (22%) say they are facing major debt concerns, while 42% say it is a minor problem, but still a source of stress. On top of that, one third (32%) of respondents said they were having difficult paying for their housing costs.

To that end, the 22% with major debt concerns admit they are cutting back on discretionary spending, including going out, cutting phone and streaming expenses, buying less expensive foods, and driving less.

Rising interest rates have also started to cool the housing market with the benchmark price of a home tumbling 6.3% in April over March to $746,000. That’s bad news for those worried about the resale cost of their home.

The financial pessimism isn’t expected to get better any time soon either. More than a quarter (28%) of Canadians say they expect to be worse off financially by this time next year. That’s a seven percent point increase in the number who said the same thing last year, and the highest mark over the last 13 years.

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Interest rate hikes have only just begun but already Canadians are feeling the effects, with housing prices down and consumers reining in their spending. While necessary, this inevitably leads to an economic and business environment that becomes more sluggish, which will weigh down on corporate earnings and growth. This pessimism may weigh down investor sentiment, but the trading professionals at Learn-To-Trade.com can teach investors how to profit in any economic environment.

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