Bank of Canada raises interest rate to 5% and people aren’t happy

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Published July 12, 2023 at 11:45 am

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The Bank of Canada has raised the key interest rate to five per cent increasing the cost of borrowing.

This morning (July 12), the Bank of Canada announced it increased the overnight rate or key interest rate by .25 basis points to five per cent.

This follows successive rate hikes since March 2022 – the most recent increase was June 7.

Higher interest rates will increase mortgage rates making it more difficult for some people to buy a home or keep up with payments.

The Bank of Canada points to “persistent inflationary pressures in services” as the reason for the rate hike.

Canada’s economy has been stronger than expected, the Bank says.

“While the Bank expects consumer spending to slow in response to the cumulative increase in interest rates, recent retail trade and other data suggest more persistent excess demand in the economy,” the Bank of Canada says in a press release.

Inflation is expected to stay around three per cent for the next year before “gradually declining to (two per cent) in the middle of 2025,” the Bank says.

“This is a slower return to target than was forecast in the January and April projections.”

The housing market has picked up but construction and real estate listings are lagging, which is adding pressure to prices, the Bank adds.

And many people took to social media to say the interest rate hikes aren’t doing much to slow inflation.

“Increasing interest rates is not going to help to fight inflation,” one person wrote on Twitter.

“How about you wait for the effect of the previous hikes to show up? You’re just asking for a drastic crash as opposed to a slowdown. When people renew their fixed mortgages at the new rate there will be chaos,” another wrote.

But still others said the rate hike should actually be higher.

“That’s a start. Should be 7 to 8 percent,” one person wrote.

The Bank of Canada says it will continue to assess inflation and the outlook for achieving the 2 per cent inflation target.

“The Bank remains resolute in its commitment to restoring price stability for Canadians,” the statement reads.

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