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The Challenges of Another Interest Rate Hike

The Challenges of Another Interest Rate Hike

November 14, 2022

Many households will feel the pain of the most recent interest rate hike, writes Peter Watson.

Plus, the cumulative effect of so many rate hikes over such a short period of time could be unmanageable.

The Bank of Canada’s most recent increase to the cost of borrowing is one half of one per cent. That increase was a combination of good news and bad.

On the positive side, most had predicted a higher interest rate increase of three quarters of one per cent. That would have been in line with other recent rate hikes.

The bad news is this is the sixth time this year the BOC has raised interest rates. Now the interest rate is at the highest point since 2008.

Consider the impact on households. The trend to manage spending is based on an ability to pay the cost of financing. Gone are the days that most people would save first then purchase an item.

Now for the reality of the year 2022. As said, six interest rate hikes with another anticipated in December. Plus, the amount of rate hikes is higher than would be expected.

There could be more financial headwinds ahead.

Recession. If the BOC’s hard policy on raising interest rates goes too far the economy could slip into recession. That can affect people in different ways.

Business activity would decline, workers might have their hours of employment reduced or suddenly find themselves unemployed. Your income could decline or disappear while borrowing costs rise.

These are challenging times. We hope you can successfully navigate these challenges.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Only investment-related products and services are offered through Watson Securities of ACPI. Peter Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com