© Reuters. Bank of Canada Governor Tiff Macklem takes part in a press conference after announcing the interest rate decision in Ottawa, Ontario, Canada on April 12, 2023. REUTERS/Blair Gable
Written by Steve Shearer and David Lungren
OTTAWA (Reuters) – Bank of Canada Governor Tiff Macklem suggested April’s rise in inflation – the first in 10 months – was anomalous and said consumer prices would continue to fall, prompting markets to scale back expectations for another hike.
The central bank has been warning Canadians that interest rates may rise. An unexpected acceleration in inflation in April to 4.4% from 4.3% in March has some economists forecasting a pickup later this year.
“Inflation is down. It’s going down. We expect it to continue to go down,” McClim said when asked about inflation figures published this week, adding that inflation in April “came out stronger than we expected.”
Before McClim spoke, money markets saw an 80% chance of a rally in July. After that, that dropped to 60%.
Earlier, the Bank of Canada said it was increasingly concerned about households’ ability to repay their debts and was seeing signs of financial stress among some homebuyers.
The central bank raised its main interest rate overnight by 425 basis points to 4.5% between March last year and January, challenging people who bought at rock bottom prices and now have to roll over their mortgages.
The share of indebted households that are at least 60 days behind on payments has been increasing since mid-2022, the bank said, but remains below pre-pandemic levels.
“In light of rising borrowing costs, the Bank of Canada is more concerned than it was last year about the ability of households to service their debt,” he said in an annual report on the health of the financial system.
“As most households prove resilient to increases in debt-servicing costs, early signs of financial stress are emerging,” particularly among new homebuyers, according to the so-called Financial System Review.
About a third of mortgage holders saw payments increase compared to February 2022, before borrowing costs started to rise.
By the end of 2026, the bank said, nearly all mortgage holders will face higher payments as homeowners renew deals.
“While the mortgage market will provide very harsh headwinds in the coming years, the effect is rippling over time,” Robert Cavitch, chief economist at BMO Capital Markets, said in a note.