The Bank of Canada (BoC) hiked the overnight interest rate by 0.5% today, to 1%. It’s the largest one-time increase since 2000. 

The move comes as Canada is facing inflation nearing 6%, well over the BoC’s 2% target.  

During the announcement, Bank of Canada Governor Tiff Macklem addressed the high inflation rate, saying Canada’s growing economy can handle further interest rate increases. However, he added that the BoC will be monitoring the situation closely. 

Mortgage rates are top-of-mind for many Canadians. This rate change will have a slight impact on what families with variable rate mortgages are paying monthly and how much Canadians can borrow for a new home. 

What interest rate hikes mean for you mortgage

Our experts don’t anticipate the rate hike will significantly correct housing prices, but it may slow down the pace of their growth. 

Scotiabank’s Chief Economist Jean-François Perrault says it will take time for before Canadians start feeling the effects of the rate hike on inflation. 

“That’s anywhere between 18 and 24 months. So, the interest rate increase that they did (Wednesday) is not going to impact inflation over the next six months, this is really about managing inflation over the next two-year horizon,” Perrault said, noting that more rate hikes are expected before the end of the year.

When it comes to investors, Scotia Wealth Management's Chief Investment Officer Andy Nasr says there was an expectation that central banks in Canada and the US would hike policy rates substantially in the coming months. But the impact on markets is going to vary between asset classes – with equities tending to perform a bit better than fixed-income securities such as bonds – during periods of rising interest rates, he added.

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It's a lot to digest… Being patient, being diversified and recognizing that corrections are part of investing, but making sure that you got a portfolio that's going to allow you to achieve your objectives, is the most important part of it.

The BoC linked much of the market fluctuations to the war in Ukraine that has disrupted supply chains and driven up the price of energy and other commodities. It added that interest rates could reach 3% in 2023. 

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