Matt Dean Realty

Interest rates just went up.

After an extended period of leaving interest rates alone, the Bank of Canada announced this morning that it is increasing its benchmark interest rate by 0.25%.

That brings the overnight rate to 2.50% and pushes the major banks' prime lending rate up to 4.70%.

For anyone currently carrying a variable-rate mortgage, that's not exactly the news you were hoping to wake up to.

But before anyone starts thinking we're about to relive the interest-rate nightmare of 2022 and 2023, I want to explain why I believe this situation is considerably different.

Normally, when a central bank starts increasing interest rates, it's because the economy is running too hot.

People are spending aggressively. Businesses are expanding. Employment is strong. And inflation is rising because demand is outpacing supply.

That's certainly not the Canada we are seeing today.

Our economy is struggling to find meaningful momentum. Many homeowners are already dealing with mortgage payments substantially higher than what they were accustomed to just a few years ago.

And household budgets are being stretched by practically everything.
So why on earth would the Bank of Canada choose to make borrowing more expensive?

Because the inflation problem we're facing today is being driven largely by something happening thousands of kilometres away.

Oil.

The numbers tell an interesting story
Canada's latest inflation report showed headline inflation running just above 3%.

That's above the Bank of Canada's preferred 2% target.

But here's something I think deserves considerably more attention:

Take gasoline out of the equation, and inflation was just 2.2%.

The difference between those two readings tells us just how much energy prices are influencing the inflation picture.

The ongoing conflict between the United States and Iran has kept pressure on global oil markets, and those costs don't stop at the gas station.

They eventually find their way into transportation, groceries, manufacturing, construction and countless other things Canadians purchase every day.

And the longer that continues, the more concerned central banks become that those price increases will spread throughout the economy.

That's what I believe is behind today's decision. Not an overheated Canadian economy. Not excessive consumer spending.

But the risk that an energy-driven inflation problem becomes something much more difficult to control.

Was today's increase the only one?

I wish I could tell you with confidence that it was. Unfortunately, I don't believe that's the most likely outcome.

In my experience, central banks generally don't begin a new tightening cycle with the intention of making one small move and immediately declaring victory.

They typically want to see whether their actions are having the desired effect.

If inflation remains stubborn, another increase becomes a very real possibility.

There's a strong likelihood we'll see another quarter-point increase at that meeting, particularly if oil prices remain elevated.

That would take the major banks' prime rate from today's new 4.70%, up to 4.95%.

Now, does that mean I expect rates to keep climbing throughout 2027?

No.

Canada's weak economy will make it very difficult for the Bank to sustain an extended series of increases.

Remember, during the previous inflation crisis, Canada’s Headline inflation number reached 8.1%.

Today we're dealing with a very different inflation picture and a much more fragile economy.

This could ultimately prove to be a relatively short tightening cycle.

But that doesn't mean we should ignore it.

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Matt Dean
RE/MAX Realty Specialists Inc., Brokerage

www.cribflyer.com

Incredible neighbourhood of Windfall in Blue Mountains. Amazing views of the mountain with only one neighbour on one side. One of the best lots! Luxury rental market can pay for itself with winter ski rentals! Contact me at (416) 450-4503 for private viewing. MATT DEAN, Broker Remax Realty Specialists

190 Courtland St, Blue Mountains, ON 4 Beds. 3 ½ Baths. -

Negotiated an incredible deal for my buyers. So happy to help a young expanding family move up. I know they are going to be so happy here! Matt Dean, Broker. Remax Realty Specialists. 416-450-4503

The Bank of Canada made its latest interest rate announcement and they held rates where they are.

This was the expected move.

But the decision itself isn’t really the story. What matters is why they held — and what that tells us about where things are headed next.

There are two very different forces pulling in opposite directions:

The Canadian economy is still showing signs of fatigue. Growth isn’t strong, unemployment is creeping up, and there’s clearly pressure building underneath.

Alternatively, we’ve got global issues pushing oil prices higher.

If they cut rates too soon, they risk inflation coming back.
If they tighten, they risk putting more strain on an already soft economy.

So, for now… they sit tight.

What this means for your mortgage, right now

Variable rates
These are now the most predictable piece of the puzzle in the short term. With the Bank of Canada in a holding pattern, there’s no immediate pressure for them to move. That creates a window of stability.

Fixed rates
This is where things are more sensitive.

Fixed rates are being driven by the bond market — and the bond market right now is reacting to global headlines, not just Canadian data.

When inflation expectations rise, fixed rates tend to drift higher as well.

This isn’t a simple “rates are going up” or “rates are going down” environment.

This is a moving target environment.

And more than anything, it’s being influenced by factors outside of Canada.
That’s why you’re seeing:
Sudden shifts in fixed rates
Periods of stability followed by quick changes