A B.C. economist says the Bank of Canada91裸聊视频檚 interest-rate hike Wednesday (June 7) was unnecessary.
The Bank of Canada raised its benchmark interest by 25 basis points to 4.75 per cent 91裸聊视频� the highest point in more than two decades.
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With that comes higher mortgage payments and interest payments on loans for British Columbians, and Marc Lee thinks it was a mistake.
91裸聊视频淭he challenge for a big chunk of Canadian households with mortgages is that higher interest rates actually increases the inflation they are experiencing,91裸聊视频� explained Lee, an economist in the B.C. office of the Canadian Centre of Policy Alternatives.
For those with a variable mortgage of $500,000, the total of all the interest-rate hikes going back to March 2022 is an additional $22,500 per year just in interest costs that you are paying to the bank, he said.
91裸聊视频淭his is actually a big deal for many Canadian households.91裸聊视频�
On Wednesday, all major Canadian banks raised their prime mortgage rate to 6.95 per cent, up from 6.7 per cent, effective June 8.
The higher interest rates not only impact mortgages, but also personal loans, home equity lines of credit and business lending, he added.
Lee thinks the hike will not fight inflation, but worsen it.
91裸聊视频淭he Bank of Canada is raising rates because it is still concerned about inflation, even though inflation has already dropped substantially.91裸聊视频�
Inflation dropped to about four per cent from just over eight per cent last summer, but the 91裸聊视频渙verall GDP and employment have been more resilient to those interest rate hikes than what has been expected.91裸聊视频�
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Lee said the bank feel 91裸聊视频渃ompelled91裸聊视频� to raise the rate again, even though most of the inflation being seen is from external factors, which includes higher energy prices largely connected to Russia91裸聊视频檚 attack on Ukraine, but also temporary supply chain issues caused by COVID-19 and natural disasters.
Overall, it takes 12 to 18 months for interest hikes to 91裸聊视频渞ipple91裸聊视频� their way through the economy.
91裸聊视频淪o we are starting to see some downturns business borrowing already, but that is really just reacting to interest hikes last year, not the current hike.91裸聊视频�
Instead, Lee said an alternative to interest-rate hikes is to look at different policies that target some of the specific sectors of concern.
While the cost of carbon-based energy has spiked, cleaner alternatives did not budge in price, so government should invest in ways to reduce consumption of carbon-based energy by investing in policies that reduce their use in vehicles and buildings. He added it would help in the fight against climate change.
91裸聊视频淭he other thing that is important is that there sectors of the economy that have been making huge windfall projects, in particular the oil and gas sector, but also supermarkets and grocery chains and it would be entirely appropriate to impose a windfall or excess-profit tax on those companies and use that revenue to flow back to households that are squeezed.91裸聊视频�
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The hike could also lead to a negative scenario with credit-card payments.
While credit-card rates are already high 91裸聊视频� but generally more fixed 91裸聊视频� tighter budgets in other areas could see more British Columbians use their credit cards to pay bills, Lee said.
91裸聊视频淗ouseholds that are more squeezed at the end of the month are going to borrow more on their credit cards, so the amount of debt on credit cards in total is going to be going up as opposed to the rates on those credit cards.91裸聊视频�
Lee said government could also provide additional income supports, pointing to the federal grocery rebate and temporary measures in B.C.
91裸聊视频淵ou can channel money directly to the folks who need it,91裸聊视频� said Lee, adding that it could be paid through windfall profit tax.
91裸聊视频淚t91裸聊视频檚 not implausible 91裸聊视频� it91裸聊视频檚 really more about political will right now,91裸聊视频� he said.
wolfgang.depner@blackpress.ca
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