Good morning,

The Bank of Canada raised rates 0.25% at this morning’s interest rate announcement, and so begins the rate increase cycle.  

The invasion of Ukraine has thrown a lot uncertainty into the geopolitical landscape.  Oil prices & other commodities have risen sharply, which will add to inflation around the world & weigh on global growth.  So we have rising inflation pressures with slowing growth.  Not a great setup.

In decades past a rising oil price benefited our currency as there was a stronger link between capital spending & energy prices but due to environmental, social & governance pressure with the push for clean energy, we aren’t seeing that here.  The last time oil was over $100 / barrel the loonie was close to par with USD so greater purchasing power reduced costs.  Right now we’re at 78 cents. 

Inflation is still well above the Bank’s 2% target with CPI sitting at 5.1%.  The war in Ukraine will keep that elevated & raise the risk of rising longer term inflation expectations.

What impact will this have on rates?  The 5 year bond yield, which the 5 year fixed rates is priced upon, has dropped since the invasion started, opening the door for a potential easing to 5 yr fixed rates.  Rate hike expectations on what the Bank of Canada will do has now dropped from 6 to 5.  Upward pressure on interest rates has eased a bit. 

If you’re in a variable rate mortgage, a rate increase is never what you want to hear but it’s important to remember that we knew rates were going to start going up here & continue going up this year, but being in a variable, you’re still saving a significant amount vs being in a fixed rate or locking.  Fixed rates are generally well above 3% so compare that to what you’re in right now in a variable.  Is the next 5 years going to be the 1 time in 10 a fixed rate ends up costing less than a variable rate?  I don’t think so but if that anxiety is weighing on your variable rate, get in touch & we can talk through the decision to lock in.

The last point I’ll end on is if you or any friends or family have a mortgage coming up for renewal in the next 2 years, get in touch with me if we haven’t already spoken.  What we’ve been doing for clients the last few weeks is going over how much higher rates would have to rise from here to make renewing early worth it. 

That’s it for me.  

Thanks for watching & have a great day.