Beginning January 1, 2023, non-Canadians will be subject to a two-year ban on the purchase of certain residential real estate in Canada – and anyone who knowingly helps a non-Canadian buy a house could find themselves in hot water.

In an effort to make housing more affordable, the federal government introduced the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”)[1] in its 2022 budget. The act received Royal Assent as part of Bill C-19 on June 23, 2022, and is expected to come into force on January 1, 2023, prohibiting non-Canadians from directly or indirectly buying residential property in Canada for a period of two years (the “Ban”).

Broadly speaking, the Ban prohibits foreign corporations and individuals who are not permanent residents of Canada or Canadian citizens from purchasing residential real estate in Canada between January 1, 2023, and December 31, 2024. Any contractual obligations arising or assumed prior to January 1, 2023, will not be subject to the Ban.

Certain key components of the Ban have yet to be determined and will be subject to additional regulations (the “Anticipated Regulations”) expected later this year. For example, the classes of persons exempt from the Ban and whether the Ban will apply to vacant land that could be subject to residential real estate development in the future have yet to be determined, among other items.

Who Is Impacted by the Ban?

Beginning January 1, 2023, persons who meet the definition of “non-Canadian” under the Act will be subject to the Ban, including:

• corporations incorporated outside of Canada;
• corporations “controlled” by foreign corporations or individuals who are not permanent residents of Canada or Canadian citizens (with “control” to be defined in the Anticipated Regulations);
• individuals who are neither a Canadian citizen nor a permanent resident of Canada; and
• such other individuals and entities to be listed in the Anticipated Regulations.

Types of Property Affected

The Ban will apply to certain property located in Canada that meets the definition of “residential property” under the Act, including:

• detached houses or similar buildings containing three dwelling units or less;
• a part of any building that is a rowhouse, semi-detached house, residential condominium or other similar premises intended to be owned apart from other units in the building; and
• such other residential properties to be listed in the Anticipated Regulations.

Available Exemptions

Notwithstanding the Definition of “non-Canadian” set out in the Act, the Ban will not apply to the following persons:

• refugees;
• non-Canadian individuals who purchase residential real estate with a spouse or common law-partner provided that their spouse or common law-partner is a Canadian citizen, a permanent resident of Canada, a person registered as an Indian under the Indian Act, or a refugee;
• temporary residents who meet certain criteria to be prescribed in the Anticipated Regulations; and
• such other classes or persons to be set out in the Anticipated Regulations.

Penalties and Enforcement

Notably, every person or entity who contravenes the Ban and every person or entity who knowingly helps someone who is subject to the Ban buy a residential property will be guilty of an offence and liable to be fined up to $10,000. Furthermore, any directors, officers, agents, mandataries, senior officials or managers of a corporation or entity that contravenes the Ban may be held personally liable if they direct, authorize, assent, acquiesce in or otherwise participate in contravening the Ban.

If a person or entity is found guilty of an offence under the Act, the Minister will have the authority to apply to the local superior court to seek an order that the residential property be sold in accordance with the Anticipated Regulations.

Because the offence provisions under the Act are not limited solely to the purchasers of residential properties, liability may arise for a plethora of persons involved in Canada’s residential real estate industry, including sellers, real estate agents, developers, assignors, assignees, lawyers and other professionals involved in any alleged contravention of the Act.

Contractual Validity

It is important to note that a contravention of the Ban will not affect the validity of the sale of a residential property. As a result, buyers and sellers of residential property subject to the Ban will still be legally required to comply with their contractual obligations despite any contravention of the Act and, accordingly, the provisions of such contracts are still likely to be enforceable pursuant to standard legal mechanisms.

Moving Forward

Looking to the future, a variety of important details of the Ban have yet to be determined. We will know more once the Anticipated Regulations are published by the Government of Canada. However, what is clear based on the language of the Act is that those involved in the residential real estate industry will need to be cautious and make reasonable efforts to identify non-Canadian buyers and sellers who cannot utilize an available exemption under the Act.

To mitigate the risks associated with violating the Ban, developers and other persons involved in the purchase and sale of residential property in Canada may wish to consider whether the addition of protective contractual provisions to a purchase and sale agreement may be appropriate. For further information on the upcoming Ban and how the Act may affect you or your business, please contact a member of our Real Estate Group.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

 [1] Prohibition on the Purchase of Residential Property by Non-Canadians Act, SC 2022, c 10, s 235 [the “Act”].

Thank you for the amazing summary.  If you have any mortgage question please reach out to us using the contact form.

Financial Mistakes to Avoid in Today’s Economy.

2022 has been nothing but bad news financially for most Canadians. Our stock portfolios are worth a lot less, everything we buy costs more, and interest rates are making our mortgages and other loans a lot more expensive. More than ever it is time to tread carefully and avoid any financial mistakes, so we gathered up the top 5 missteps you definitely want to steer clear of for the rest of this year and beyond!

1. Not understanding your loan agreements.
It is shocking to see how many people fail to understand the terms and conditions before entering into potentially life-changing contracts like a mortgage or student loan. Don’t assume your student loan will have a low-interest rate and make sure to investigate the amount of your monthly payment post-graduation, and how many years you will be paying.

Mortgages can be complicated, but that’s no excuse and a good mortgage broker will take the time to answer all of your questions. Trigger rates in mortgage agreements have recently been in the news with rising interest rates and are a good example of people not fully understanding what they signed.

2. Not having any system to track your expenses.
“I don’t know where my money goes” is a common refrain as prices continue to rise. However, given the number of mobile applications, web programs, and other online tools available to simplify this task (or just use a pencil!), there isn’t any excuse. Regardless of how much income you have coming in, monitoring and controlling expenses is a critical step as plenty of high-earning-now-bankrupt athletes and actors have proven!

3. Investing before paying off debt.
The question of whether it’s better to invest any “extra” cash or pay down debt needs a re-think given recent economic changes. In 2021, mortgages and lines of credit could be had for around 2% and most stock indexes reported double-digit gains. Paying down those debts with money you could have invested in the markets was not the best option.

A year later, borrowing rates have doubled in many cases (mortgages for example) and financial markets are wobbly at best, with many deep into the red year to date. These aren’t the only factors to consider, and you need to do the math for your situation, but the case for paying down debt is getting stronger by the day.

In case you are wondering, credit card debt is another deal altogether! In almost every case you would be much better off by throwing all you have at the unpaid balance before investing any of that money.

4. Not saving and investing.
As higher prices and interest rates suck up more of our disposable cash, something has to give, and putting a little bit of money away each month may be on the chopping block. If you need the money for essentials like food or rent, then you have no choice but to be honest with yourself about what is essential! Once you break the saving habit it’s hard to get it back and saving is not really a discretionary expense unless you have an alternative plan to fund your retirement.  Catching up on savings might be possible when things get better, but that could be years and the earlier you start, the more your savings will grow.

5. Spending too much on a car.
You should be aiming for 15% of your take-home pay for total car costs including the loan payment, insurance, and gas. This leaves you between $30K and $35K for a vehicle if you make $100k annually. That’s not a lot given that new and used cars have been in short supply in 2022 and prices are rising. Although repairs aren’t cheap and you won’t get that new car smell, hanging on to your current ride may be the best option financially.

At the end of the day, financial knowledge is the best defense for avoiding mistakes and we hope you continue to learn with us.

One of the biggest benefits of purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs, and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms, or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

• The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
• Better interest rates than credit cards as they are a ‘secured’ form of debt.
• You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

• Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
• Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to us at DLC – Mainstream Mortgages.  Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

TFSA vs RRSP – No Losers in This Battle!.

The worst financial mistake you can make is believing that a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) is something to look into when you are a little older and more able to set some money aside. The fact is, you don’t use these accounts for saving at all, you use them for investing. Your retirement fund could grow to seven figures, even if you only contribute a fraction of the allowable yearly maximums. They also come with huge tax-saving benefits.

A lot of people get discouraged by the sheer amount that you are allowed to contribute to these registered accounts and the mere pittance they may be able to come up with — don’t fall into that mindset!

If you make 60,000/year from your job, you could contribute over $10,000 to your RRSP and another $6000 to your TFSA every year. Considering you are only going to have about $45K in your jeans after taxes, finding a spare $16K would require more than 30% of your take-home pay!

The good news is that your yearly contribution limits can be carried over and as you grow older (and theoretically have more disposable income) you can catch up. The bad news is that playing catch up isn’t going to happen unless you are very disciplined with your spending. Sure, you may earn more, but you will spend more… kids, cars, vacations, and even the cat is going to cost you $800/year!

That extra disposable income you were envisioning may not materialize until you are in your mid 50’s, if ever! You need to scrape together whatever investment savings you can now, even saving just 5% ($200/month) of a $60K salary would make a huge impact.

Putting off getting started is going to cost you way more than you ever imagined in lost investment returns. Ignore the pitiful interest rates you see on bank savings accounts, holding cash will actually cost you money at current interest and inflation rates. However, the average annual return on many stock indexes (S&P, TSX, DSJ) over the past 40 years is around 7%. If you do a little math, you are soon going to realize that even on a relatively small investment of $200 per month, the difference between starting when you are 18 versus starting at age 28 is jaw-dropping.

Investing $200/month from age 18 to 65 at 7% would give you $790,139. The same $200 at the same rate from age 28 to 65 would yield just $384,810. Sure, you would be contributing $24,000 more over that extra 10 years, but your nest egg at 65 would be double — more than enough to keep you poolside at a nice resort every winter while those late starters are stuck in the snow!

There are plenty of rules, regulations, and strategies to consider and every angle of the TFSA vs RRSP debate has been extensively written about. While you do need to understand the basics of how they work, the simple goal for the vast majority of us should be to put something, anything, into one (or both) of these accounts on a regular basis and start investing — you can’t go wrong!

One of the quickest ways to take back control of your finances and understand where your money is going is to create a monthly budget. This will help you get a snapshot of your income compared to your spending, and provides an avenue to review outgoing costs and determine areas for improvement to help you increase your monthly cashflow or just feel less stressed!

Step 1: Calculate Your Income

The very first step to creating any budget is determining your income – knowing exactly how much money do you bring in, per month, is important to understanding what you have available to spend. Remember to focus on NET INCOME versus gross salary as thinking you take home more than you do can lead to overspending and failed budgets.

Step 2: Track Your Spending

Once you have determined your income, you will want to take a look at your spending. Reviewing and categorizing all your monthly bills can help you breakdown exactly where your money goes and your priorities to see where changes can be made.

To start, first list out your fixed expenses – these are things like car payments, loans, rent or mortgage costs that do not change on a monthly basis.

Next, you will want to take a look at your variable expenses – things like groceries, gas, entertainment, etc. and determine your average spend. This is typically the area where people are able to cut back.

Step 3: Set Realistic Goals

Realistic goals are vital for long-lasting financial health. It is important to determine what you cannot live without and where you can cut costs or scale back on spending.

Ideally, when it comes to your monthly budget, you want to consider the 50/30/20 rule, which applies the following:

• 50% of your spending is for NEEDS such as rent or mortgage payments, car payments, utilities and groceries
• 30% of your income goes to WANTS such as shopping, vacations, streaming services, etc.
• 20% of your income goes to SAVINGS OR DEBT such as emergency funds, retirement, child’s education and/or credit card payments

Step 4: Make a Plan

Once you have your goals set, you can now make a plan to tackle your financial position and ensure a healthy cashflow each month.

There are a few different ways you can plan to handle your monthly budget. For some, setting realistic spending limits for each category works well. For others, taking a look at the importance of the items on their expenses list and re-prioritizing can free up funds.

Step 5: Adjust Your Spending

Now that you have determined how much money you bring in per month and what you spend it on, you can take a look at adjusting your spending to ensure you remain on budget. Taking a look at any wants is a great place to cut out frivolous spending beyond a reasonable amount.

This is also a great time to review your fixed expenses. Perhaps you can save money by getting a better interest rate on your mortgage or changing your payment schedule for your loan.

Be sure to connect with a Dominion Lending Centres mortgage expert before making any changes!

Step 6: Stay on Track

Lastly, once you’ve tracked all your spending and income and determined your monthly budget, you will want to stay on track. Tracking your budget on a monthly basis is important to catch any changes in your spending habits. As well, it is a good idea to conduct an annual review and take into account any increase in expenses or wages that may require shifts in your overall plan.

Remember! A healthy, well thought-out budget is key to financial freedom and comfort.

If you are a Canadian living in debt, you are not alone. According to Statistics Canada, household debt grew faster than income last year, with Canadians owing $1.83 for every dollar of household disposable income to debt(1).

• Canadian households use almost 13.48% of income for debt re-payment(2).

• Rising inflation and interest rates (1).

• The cost of living is projected to increase in 2022 (2)

So how can one ever get out of debt? Debt consolidation.

What is debt consolidation?

Debt consolidation means paying off smaller loans with a larger loan at a lower interest rate. For example, a credit card bill debt with an interest rate of 19.99% can be paid off by a 5-year Reverse Mortgage with an interest rate of 7.70%* from HomeEquity Bank. (*5-year fixed rate as of June 28, 2022. For current rates, please contact your DLC Mortgage Broker).

A lot of confusion surrounds debt consolidation; many of us just don’t know enough about it. Consider the two sides:

The pros

• The lower the interest rate, the sooner you get out of debt. A lower monthly interest allows you to pay more towards your actual loan, getting you debt-free faster.

• You only have to make one monthly debt payment. This is more manageable than keeping track of multiple debt payments with different interest rates.

• Your credit score remains untarnished because your higher interest loans, such as a credit card, are paid off.

The cons

• Consolidating your debt doesn’t give you the green light to continue spending.

Consolidating helps you get out of debt; continuing to spend as you did before puts you even further into debt.

• A larger loan with a financial institution will require prompt payments. If you were struggling to pay your debts before, you may still be challenged with payments. The CHIP Reverse Mortgage may be a better option; it doesn’t require any payments until you decide to move or sell your home.

• You may require a co-signer who will have to pay the loan if you’re unable. Note that the CHIP Reverse Mortgage does not require a co-signer, as long as you qualify for it and are on the property title.

So how do you know if debt consolidation is the option for you? Start by contacting your DLC mortgage broker and ask if the CHIP Reverse Mortgage could be the right solution for you.

SOURCES:

1 Debt-to-disposable-income ratio eases down from record 185% | CBC News

2 Key household debt-to-income ratio down in Q1 as income rises faster than debt | The Star

Financial Advice that Never Gets Old.

It’s difficult to find timeless advice in the ever-changing world of personal finance but these five are about as close as you can get.

1. Start small and start early with investing
Only around 5% of Canadians under 25 have a TFSA, which means 95% have already missed out on 7 years of compounded returns. Starting small could be as little as $100 month… and starting early means now! Invest what you can and don’t think a $100 monthly will never amount to anything.

Investing $100 month at 5% for 47 years (age 18 to 65) will give you $68,754 more than someone who did the same starting from age 25. Time really is money when it comes to compounded returns, so get started as soon as possible.

2. Make more or spend less?
Our advice is to do both, but there are limits on how much income you can generate and cutting back on expenses has a bigger impact on your bottom line. If you’re lucky, you may find some expenses you could easily do without, like that lightly used gym membership or seldom watched 200-channel cable package.

A part-time job or side hustle isn’t a bad idea, but you will spend more time working and less time enjoying life. Don’t forget that any extra income is fully taxable — you might need to earn $10 in order to get the same result as a $7 spending cut.

3. Re-evaluate your wants and needs.
A 1200 sq ft bungalow was the standard for most families in the early 1970’s. These days, houses are now over 2000 square feet on average and come with plenty of high-end finishes. Lifestyle creep is not limited to our housing needs and now influences what we drive, how often we eat out, and where we go for vacation. Being able to satisfy your wants later in life will only come from making smart spending decisions on your needs earlier in life and freeing up the cash to start saving and investing.

4. Understand credit and debt.
131 months! That’s how long it takes to pay off a $1000 credit balance paying the minimum amount — and it will cost you almost $1000 more in interest charges! Many people carry a credit card balance and are blissfully unaware of just how much it is costing them each month. Car loans are another area where the financing costs add up to a lot more than most people realize.

The key is to be knowledgeable about your debt. Track what you owe and how much that debt is costing you as well as any alternatives that may lower that cost. For example, refinancing your mortgage or drawing on home equity to pay off higher interest loans or credit cards.

5. Get financially literate.
Managing your money has become more difficult as we have a lot more spending, saving, and investing options, but we also have access to a lot more information and tools to help us. For example, diving into the real impact of those investment fees on your mutual funds (it’s a lot!) can easily be investigated online in just a few minutes.

Transform your vacation rental into a welcoming oasis, on a budget.

Are you dreaming of buying a vacation rental property, have just bought one, or are strongly considering it? If so, your mind is probably abuzz with design ideas and thoughtful touches you could add to the home.

In order to make a rental property into a viable business, you need to set a reasonable budget and stick to it. And everything in the home should be geared towards rental guests. Some elements may not align with how you would design and furnish your own home, but what matters is that it appeals to guests. Keep in mind that as a rental, it has to be able withstand wear and tear, and items should be reparable or replaceable.

How I approached the design of my vacation rental property was to learn about who stays in the area, what they value, and how I could tie that in with the character of the home to create a great experience. In my case, the main guests are groups of women between the ages of 25-40, who come to tour wineries and enjoy Instagram-worthy decor. My house is about 100 years old, so I decided to work with its charm and quirks to create an airy and open design with accents of ecru and foliage.

To furnish your vacation rental without sacrificing comfort or experience, there are many different tactics you can employ.

First and foremost, ensure that everything you bring into the home can reasonably be maintained. That means, don’t plant rose bushes if you can’t trim them, don’t bring in a white shag carpet if you won’t be there to vacuum it every day. As a guest, you want to arrive at a home that’s clean and well taken care of. If your ideas are so ambitious that you can’t manage the upkeep, it will take away from the guest experience and potentially their overall impression of the place. Put it this way: how would you feel if you pulled up to a house with overgrown shrubs and stained carpets?

Re-use, re-purpose, and be thrifty. Everything you bring into the space doesn’t have to be shiny and new. Thrift stores, grandparents’ basements and garage sales can be full of treasures like antique books, frames, artwork, lamps or other accents. Clean them up and paint them, if needed. Placing out a few selectively chosen antiques can add uniqueness and visual interest to the room. For simple items like frames that can easily be painted, it can save you a bundle on decor.

Remove any personal items from the home, such as family photos, paperwork, storage bins, clothing, etc. Leaving these items around will make guests feel like they are intruding on someone else’s personal space; it doesn’t feel like a getaway. That’s not to say that you can’t add personal touches. For example, I have an old chest that belonged to my grandparents in my vacation rental. But keep in mind that personal touches tell a story and are different than personal items.

You can also add homey touches before guests arrive, like a bottle of wine (is there a brand or product that your area is known for?), a hand-written card, a bag of coffee, some toiletries, etc. These thoughtful extra-somethings make the guests feel welcome and valued.

Consider guests’ comfort as they use the house. Ensure the linens are plentiful. That includes towels, hand towels, sheets, blankets, pillows, etc. They don’t have to be pricey linens, IKEA or Costco works just fine. Everyone has their own way of getting comfy on the couch or in bed. Some guests may only want one pillow, while others may want three. Have extras available in a linen closet or shelving area so that they can freely use what they need.

Spills and messes happen, kids may wet the bed, or someone might want to take a nap on the couch, so a few extra blankets, towels, sheets, and pillows will be greatly appreciated. I once stayed in a rental apartment that only had two thin pillows available, and I felt like I was asking a lot for the host to drop off another pillow to me that evening. Aim to make the experience as smooth and comfortable as possible.

In addition to comfort, make it as easy as possible too. Provide a house manual detailing everything they need to know about check-in, check-out, info about the home and the area, if certain things are not allowed, how to contact the host, etc. Put helpful labels or markers on closets or storage areas that house extra bedding, kitchen supplies, recycling bins, etc. The goal should be to provide your guests with all the handrails they need to have a fantastic and streamlined experience, without having to call you to ask anything.

Finally, create a statement somewhere in your home that stands out and is memorable. It could be artwork, a wall decal, or mural that your guests want to take pictures of. It could be a really fabulous gallery wall (showcasing all those thrift store frames) that displays your interests and tells a story. Or maybe it’s a stylish and comfy room with plush couches, lots of pillows, blankets, and interesting books.

If you were staying at a vacation rental, imagine what details you would appreciate or want to take a picture of. What type of spaces would you be drawn to relax and unwind in? In my home, I created a room for ultimate relaxation and comfort; it has large, plush couches, tons of pillows, movable coffee tables, and a curtain that runs along the length of the doorway so that you can block out the action happening in the rest of the house. Guests are always drawn to this area because it’s a cozy place to read, hang out or watch a movie.

No matter what your budget is, you can turn your vacation rental into a welcoming oasis that will make guests feel comfortable and valued, and give them a fabulous experience.

I can’t even begin to explain how many peoples credit reports are messed up.  Correcting the errors can be time consuming and frustrating.   At Mainstream Mortgages, we alway ensure that our client’s credit bureaus are reporting correctly and if there are any errors we have then corrected at EQUIFAX using their investigation form.  The best part is that they are usually really fast and it only cost about $15.00.   We are happy to do this for our clients.  Enjoy the blog post!

A few simple steps to healthy credit…

Just like you should have a physical every year to make sure you’re healthy, you should do the same for your credit report and score.

Don’t wait until you go to buy something and you are turned down. And don’t worry… chequing your own credit does not affect it. So, what should you be looking for?

MISTAKES

Make sure your personal information is correct and up to- date. Also, check that your date of birth and any other identifying information is correct as well.

ERRORS

Even creditors make mistakes sometimes so carefully look over any negative information appearing on your credit that isn’t true. Creditors are required to change any errors that you find on your report.

HINT: Send a letter to the credit bureaus, as well, to let them know there was an error and send a copy to the credit agency that incorrectly reported to motivate them to take care of it in a timely manner.

OUTDATED INFORMATION

Credit agencies are required to remove certain information from your credit after a certain number of years. For example, if you got behind on your payments but then went back to your normal payment schedule, that late history is to be removed after 6-7 years. Don’t assume it will be. Be proactive and follow up to make sure it was done.

FRAUD

We all know someone who has had their identity stolen and nothing wrecks a credit score and report more than someone hijacking it. It doesn’t necessarily have to be a stranger either. Family and friends have been known to “borrow” someone’s credit. Be smart and make sure to protect your credit from the known and the unknown.

WHY DO ERRORS MATTER?

Even minor errors like a misspelled name or a wrong address can keep you from getting a loan or even lower your credit score. Keep your credit as healthy as possible by checking it every year. Choose a day that will be easy to remember like your birthday or the day you file your taxes.

The Bank of Canada today increased its target for the overnight rate to 1½%, with the Bank Rate at 1¾% and the deposit rate at 1½%. The Bank is also continuing its policy of quantitative tightening (QT).

Inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food. In Canada, CPI inflation reached 6.8% for the month of April – well above the Bank’s forecast – and will likely move even higher in the near term before beginning to ease. As pervasive input price pressures feed through into consumer prices, inflation continues to broaden, with core measures of inflation ranging between 3.2% and 5.1%. Almost 70% of CPI categories now show inflation above 3%. The risk of elevated inflation becoming entrenched has risen. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well anchored.

The increase in global inflation is occurring as the global economy slows. The Russian invasion of Ukraine, China’s COVID-related lockdowns, and ongoing supply disruptions are all weighing on activity and boosting inflation. The war has increased uncertainty and is putting further upward pressure on prices for energy and agricultural commodities. This is dampening the outlook, particularly in Europe. In the United States, private domestic demand remains robust, despite the economy contracting in the first quarter of 2022. US labour market strength continues, with wage pressures intensifying. Global financial conditions have tightened and markets have been volatile.

Canadian economic activity is strong and the economy is clearly operating in excess demand. National accounts data for the first quarter of 2022 showed GDP growth of 3.1 percent, in line with the Bank’s April Monetary Policy Report (MPR) projection. Job vacancies are elevated, companies are reporting widespread labour shortages, and wage growth has been picking up and broadening across sectors. Housing market activity is moderating from exceptionally high levels. With consumer spending in Canada remaining robust and exports anticipated to strengthen, growth in the second quarter is expected to be solid.

With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further. The policy interest rate remains the Bank’s primary monetary policy instrument, with quantitative tightening acting as a complementary tool. The pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and inflation, and the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target.

Information note

The next scheduled date for announcing the overnight rate target is July 13, 2022. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time.