Yet another interest rate hike in Canada

North American stock markets had a rough week with the resurfaced fears of recession coupled with the continued hawkishness of central banks. US S&P 500 and Nasdaq lost 3.37% and 3.99% and Canada’s S&P/TSX Composite declined 2.63% during the week.

 

Bank of Canada finished off the year with another 0.5% increase in Interest rate to 4.25% but signals that the officials are most probably done with tightening and will keep the rates at the current levels throughout 2023. The forecast curve however shows that markets expect another 0.25% in 2023.

 

The US interest rate is at 4% currently but the central bank still has one more meeting in December and is expected to increase the rate by 0.5% and another one in 2023 to reach 5%. Slowly decreasing inflation, a strong job market, and not-so-slow producer prices have shown that the US economy is resilient enough for more rate hikes.

 

The high-interest rates have pushed mortgage rates in US and Canada to over 6%. More than 90% of US house owners have a fixed 30-year mortgage and are not affected by higher rates and only the new buyers are under pressure. In Canada, however, the nature of mortgages and the high percentage of variable rate holders causes a lot of stress for households.