Interest Rates Increased Less Than Expected
On October 26, 2022 the Bank of Canada (BoC) raised interest rates another 0.5% to 3.75%. The increase is expected but I am surprised that it was not for 0.75%! The BoC said previously that they were going to front-load rate increases so that they could get inflation under control - this tells me that they are seriously concerned about a recession and the economic impacts of rising unemployment.
Mark my words - a recession for the Canadian economy is coming! I don't know how deep or how long it will be, but "winter is coming" - it has too! With inflation taking a significant toll on people's budgets and rising interest rates increasing mortgage costs, the average person is much worse off than they were 2 years ago.
Mandate of the Bank Of Canada
Now the BoC's mandate is "to promote the economic and financial welfare of Canada." With four core functions:
Monetary policy: Keep inflation low, stable and predictable.
Financial system: Promotes safe, sound and efficient financial systems within Canada and internationally.
Currency: Designs, issues and distributes Canada's bank notes.
Funds management: Act as fiscal agent for the Government of Canada, managing its public debt programs and foreign exchange reserves
Keep in mind that employment is not explicitly included in the BOC's mandate like it is for the Federal Reserve in the US. Unemployment will rise, inflation will come down, and so will interest rates - they must eventually and the next monetary expansion phase will begin…
If you are an investor, keep calm and carry on - these are the rough patches you must weather eventually in any investment. Hopefully you positioned yourself so that your properties are at least cash-flow neutral and are carrying themselves. You can't time the market and even with today's interest rates, I can still find you properties that are cash-flow positive with significant upside potential.