More Rate Hikes in Canada 🇨🇦
Table of Contents :
Latest update.
Stalled Economy.
Spending Down.
Housing Down.
Stressed Canadians.
My Perspective.
Disclaimer.
In case you are feeling the financial squeeze in Canada, you are not alone.
From ever increasing rate hikes by Bank of Canada, to slowdown in job market it is like a double whammy for Canadians.
People are asking, is another rate hike around the corner next week, and lets talk about that.
Latest update
In a latest economic report before next week’s rate decision, contraction in Q2 GDP numbers came as a surprise to many.
Some experts believe, that it is unlikely we will have another rate hike in September.
Even on and off strike on container port in BC, is likely to pull down GDP numbers.
Collectively, there is a likelihood of increase in inflation now.
No doubt, high interest rates are impacting both supply and demand side of the equation.
So I believe, keeping rates intact or a marginal increase by 0.25%, with a wait and watch approach, will allow inflation to come down below 2%, without much economic damage.
Stalled Economy
According to Stats Canada, in second quarter of the year our real GDP is down, and they have even revised down their estimates.
Sequential drop in housing investments this quarter is a cause of concern, as we see a trend, where it is going down quarterly for the fifth consecutive time.
It seems we are witnessing an economic slowdown, where rate hikes is a major contributor.
Surely we have not reached recession yet, technically for that to occur, you need to have at least two consecutive quarters of economic decline.
I believe recession is coming, but we need to see how deep or shallow it will be.
Spending Down
Surely reduction in Q2 GDP came as a surprise, even to Bank of Canada.
We have seen consistent increase in rates for a while now.
If you ask me, times of cheap money and extra liquidity is long gone, and will not come back at least for the foreseeable future.
The whole idea about monetary tightening is, to suck out liquidity from the system.
This not only reduces demand, but also increases cost of money.
Also another casualty is, the job market.
Consequently, Canadians are spending less in today's economically uncertain times.
That is why consumers are spending less, as we are seeing record high debt levels for Canadians.
Housing Down
Whenever there is a slow down in the economy, retail auto and housing are the worst hit.
With Bank of Canada’s monetary tightening, slow down in construction especially housing, was expected.
As people now have to qualify at much higher rates that too with stress test, housing slow down was inevitable.
Although it remains one of the core sector of our economy, but people have over leveraged themselves lately, when rates were too low.
The situation now is, genuine buyers don't qualify, whereas investors are sitting on the sidelines.
I believe, correction in house prices is inevitable, especially when interest rates have trippled in an year.
Hope you get the idea.
Stressed Canadians
Latest survey doesnot surprise me, that nearly half of Canadians are living paycheque to paycheque.
I believe, ever increasing cost of living, and increased levels of unsustainable debt, accumulated when rates were ultra low, are squeezing Canadian households now.
Consequently, citizens are blaming politicians for their economic plight, clearly evident as conservatives are ahead in latest survey.
Dissatisfaction among women is on the rise, when it comes to finances.
But I believe, primarily it's our duty to do due diligence, before we take any financial decision, that can affect us either today or in the future.
Just keep in mind, it's your finances and you need to be educated about it.
My Perspective
Inflation takes away your purchasing power, at least that is clear to generation Z now.
Bank of Canada is it trying to control inflation by, increase in cost of money while reducing money supply.
I believe rates will stay higher for an extended period of time, so highly leveraged people, or those whose mortgages are up for renewal in 18 months or so, will be most affected.
They will witness erosion in house prices, while paying more for mortgage, as banks will not extend amortization beyond 30 year.
I believe there is no quick fix, as wealth will transfer from speculators to real long-term investors, who have financial appetite.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.