The economy "needs" higher rates, says BoC's Macklem - Mortgage Rates & Mortgage Broker News in Canada

Abstract

While the Bank of Canada is currently still forecasting a "Soft landing" for the Canadian economy, it's going to take higher interest rates to help that happen. "We think the economy needs higher interest rates, and it can certainly handle higher interest rates," he told reporters. "We may need to take more interest rate steps to get inflation back to target," he said during Thursday's press conference. "Or we may need to move more quickly, we may need to take a larger step." Rate expert Rob McLister noted that OIS market probability of a 75-bps rate hike in July rose to 50% following that comment. The BoC has made clear that its objective to quickly get the policy rate back to neutral, which is between 2% and 3%. As noted in a previous post, markets are now anticipating half-point rate hikes at each of the next three policy meetings. Highly indebted households are "Especially vulnerable" While indebtedness has increased among all households, the Bank of Canada noted that highly indebted households are at the most risk as rates continue to rise. "These households will see the largest rate increase because they took out a mortgage when rates were at or near record lows," the Bank said.