Interest rates on the rise

Interest rates in Canada have spiked again. This time, the Bank of Canada raised its benchmark interest rate by 25 basis points as of July 12. For anyone that has some type of debt, this is going to affect you. And according to the Canadian Federation of Independent Business (CFIB)’s Financing Main Street research series, the number of businesses seeking financing has surged in the last decade.

With the Bank of Canada’s increase, the overnight rate is now sitting at five per cent, the bank rate is at 5.25 per cent, and the deposit rate is also at five per cent. There might be troubled times ahead for many households in Canada. This is the highest the rate has been since 2001 and 10th increase by the central bank since March 2022.

In its Monetary Policy Report, the Bank of Canada says the increase was necessary to help slow economic growth and reduce core inflation. “If we don’t do enough now, we’ll likely have to do even more later,” reported Tiff Macklem, governor of the Bank of Canada. “But if we do too much, we risk making economic conditions unnecessarily painful for everybody.”

Canada’s economy has appeared strong, reports the Bank of Canada, but consumer spending is expected to slow in response to the increase in interest rates. This might spell trouble for contractors in the retrofit sector.

Homeowners and building owners will likely be less inclined to pay for large upgrades with interest rates being so high.

Industries like construction often require larger sums of money over longer periods of time to complete projects. This makes the industry quite susceptible to interest rate increases. For example, in the second quarter of 2022, the construction sector had one of the larger output declines, and with the latest interest rate increase, it is likely that construction projects may slow down even more. This will likely impact all sides of the industry – commercial, residential, institutional, and industrial. Additionally, anyone with variable mortgage rates will feel the most pain from the interest hike.

The coming months will likely be hard on households and businesses as income will have to be shifted to account for the higher interest rates on debt. Hopefully, this is the final time interest rates need to be increased this year. I guess only time will tell.

The somewhat good news is that the Bank of Canada expects inflation to ease, but it could take until 2025 to hit its two per cent target, according to Macklem. The next scheduled date for announcing the overnight rate target is Sept. 6.

July/August 2023

Volume 33, Number 4 ISSN 1919-0395

Publisher Mark Vreugdenhil

(289) 638-2133 ext.1

Cell: (416) 996-1031 mark@plumbingandhvac.ca

Editor Leah Den Hartogh (289) 638-2133 ext. 2 Cell: (289) 830-1217 leah@plumbingandhvac.ca

Assistant Editor Francesco Lo Presti (289) 638-2133 ext. 3 francesco@plumbingandhvac.ca

Contributing Writers

Glenn Mellors, Greg Scrivener, Michael Ridler, Ron Coleman

Design and Production

Tim Norton/Janet Popadiuk production@plumbingandhvac.ca

All articles and photos by Plumbing & HVAC staff unless noted.

PLUMBING & HVAC Magazine is published seven times annually by Marked Business Media Inc. and is written for individuals who purchase/ specify/approve the selection of plumbing, piping, hot water heating, fire protection, warm air heating, air conditioning, ventilation, refrigeration, controls and related systems and products throughout Canada.

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