Market expectations for another increase were reduced as a result of Bank of Canada Governor Tiff Macklem’s comments that April’s inflation uptick, the first in ten months, was an anomaly and that consumer prices would continue to decline.
The central bank has been alerting Canadians to the possibility of rising rates. Some experts are predicting a boost later this year in response to the unexpected increase in April’s inflation, which rose from 4.3% in March to 4.4%.
“Inflation has come down. It is coming down. We expect it will continue to come down,” Macklem said when asked about the inflation figures published this week. He did, however, acknowledge that April inflation “did come in stronger than we expected.”
Before Macklem spoke, money markets had seen an 80% chance for a hike in July. That fell to 60% after today’s comments.
Macklem declined to speak further about monetary policy.
Earlier, the Bank of Canada said in the financial system report that it was increasingly worried about the ability of households to pay off their debts and is seeing signs of financial stress among some home buyers after interest rates shot up.
The central bank hiked its key overnight rate by 425 basis points to 4.5% between March of last year and January, posing a challenge for people who bought at rock bottom rates and now have to renew their mortgages. Typically fixed-rate mortgages are renewed every five years in Canada.
The cost of paying off new and renewed mortgages is climbing, the share of indebted households behind on payments for at least 60 days has been increasing since mid-2022 but remains below pre-pandemic levels, the bank said.
“In light of higher borrowing costs, the Bank of Canada is more concerned than it was last year about the ability of households to service their debt,” it said in an annual report on the health of the financial system.
“While most households are proving resilient to increases in debt-servicing costs, early signs of financial stress are emerging,” particularly among recent home buyers, according to the so-called Financial System Review.