The Bank of Canada has raised its benchmark interest rate again, to 4.5 per cent.

The move was widely expected by economists as the bank tries to wrestle record-high inflation into submission.

It’s the eighth time in less than a year that the bank has hiked its trendsetting rate — a move that will make borrowing money more expensive.

But at one quarter of a percentage point, it’s also the smallest hike since March, and thus a sign that the bank may be done with hiking rates for the next little while. 

The bank said as much at a news conference following the announcement, with governor Tiff Macklem using the word “pause” to describe the bank’s monetary policy strategy at this moment.

“With today’s modest increase, we expect to pause rate hikes while we assess the impacts of the substantial monetary policy tightening already undertaken,” he said. “To be clear, this is a conditional pause — it is conditional on economic developments evolving broadly in line with our … outlook.

“If we need to do more to get inflation to the two-per-cent target, we will.”

Big banks raise rates to match

All five of Canada’s biggest lenders moved swiftly to raise their own prime lending rates in response, adding the same 0.25 percentage point adjustment, to bring their rates to 6.7 per cent, starting Thursday.

The exact impact will depend on the loan, but in general, Wednesday’s hike will add about $15 to a variable rate mortgage payment every month, for every $100,000 worth of debt. That’s coming on the heels of the seven previous hikes.

If the central bank is indeed finished hiking rates, it’s not a moment too soon for people like Mezba Mahtab. He and his wife bought a home in Whitby, Ont., in 2021. They were previously renters paying just shy of $2,000 a month, but they wanted more space for their children, so they bought a house they could afford, on a variable rate loan.

Their original mortgage payment was about $3,000 a month — a bit of a stretch, but workable within their family budget. 

Since then, however, their monthly payment has ballooned to more than $5,000, a level that Mahtab says gobbles up every penny he can get his hands on.

“I’ve heard the term house poor before, but this is the first time I’m feeling it,” he told CBC News in an interview.

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Economist Armine Yalnizyan says the kinds of inflationary pressures that exist today make it extremely difficult for the Bank of Canada to tame inflation to about 2 per cent through interest rate hikes.

He questions why the central bank keeps raising rates so aggressively, bringing pain on homeowners like him while doing little to bring down the cost of living.

“I don’t believe it when they say this will control inflation; all it has done is made my bank richer,” he said

“I would rather pay $10 for bread and have a house and a job than be jobless and homeless, but bread comes back to $2.”

The hikes so far have managed to bring inflation down from about four times the normal level to only about three times, but the central bank says it’s confident that the rate will come down sooner than many are anticipating. 

According to the latest projections in the Monetary Policy Report, also released Wednesday, the Bank of Canada expects the headline inflation number to come down to as low as three per cent by the end of this year, and then two per cent next year.

A change in policy direction

They aren’t the only ones who think so, either.

Stephen Brown, an economist with Capital Economics, thinks Canada’s economy is slowing down rapidly and inflation may be back into the range of between one and three per cent sooner than many think.

“We continue to [believe] that the bank is underestimating how quickly core prices will decline, with our forecasts still pointing to a drop in headline inflation to two per cent by the second half of this year,” he said.

“The upshot is that we remain confident that today’s hike will be the last and we see scope for the bank to start cutting interest rates again as soon as the third quarter.”

After absorbing eight rate hikes in under a year, the prospect of a rate cut would be welcome news to borrowers like Mahtab. But at a news conference following the rate announcement, Macklem was asked repeatedly about whether rate cuts are on the table — and he pushed back on the idea every time.

“Let’s keep in mind that inflation’s still over six per cent,” he said. “Inflation’s coming down, but we do have to be humble; there are a number of risks out there.… So it’s really far too early to be talking about cuts.”

Mortgage broker Samantha Brookes agrees that the days of rock-bottom interest rates may be gone for good.

“I don’t think that these rates are necessarily gonna go right back down at all,” she told CBC News in an interview. “The one and two per cent fixed rates — I think we’re done with those.”