A B.C. economist says the Bank of Canada香蕉视频直播檚 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 香蕉视频直播� 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.

香蕉视频直播淭he challenge for a big chunk of Canadian households with mortgages is that higher interest rates actually increases the inflation they are experiencing,香蕉视频直播� 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.

香蕉视频直播淭his is actually a big deal for many Canadian households.香蕉视频直播�

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.

香蕉视频直播淭he Bank of Canada is raising rates because it is still concerned about inflation, even though inflation has already dropped substantially.香蕉视频直播�

Inflation dropped to about four per cent from just over eight per cent last summer, but the 香蕉视频直播渙verall GDP and employment have been more resilient to those interest rate hikes than what has been expected.香蕉视频直播�

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Lee said the bank feel 香蕉视频直播渃ompelled香蕉视频直播� 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 Russia香蕉视频直播檚 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 香蕉视频直播渞ipple香蕉视频直播� their way through the economy.

香蕉视频直播淪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.香蕉视频直播�

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.

香蕉视频直播淭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.香蕉视频直播�

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The hike could also lead to a negative scenario with credit-card payments.

While credit-card rates are already high 香蕉视频直播� but generally more fixed 香蕉视频直播� tighter budgets in other areas could see more British Columbians use their credit cards to pay bills, Lee said.

香蕉视频直播淗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.香蕉视频直播�

Lee said government could also provide additional income supports, pointing to the federal grocery rebate and temporary measures in B.C.

香蕉视频直播淵ou can channel money directly to the folks who need it,香蕉视频直播� said Lee, adding that it could be paid through windfall profit tax.

香蕉视频直播淚t香蕉视频直播檚 not implausible 香蕉视频直播� it香蕉视频直播檚 really more about political will right now,香蕉视频直播� he said.

wolfgang.depner@blackpress.ca
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