The Bank of Canada's surprise jumbo interest rate hike this week has jolted highly indebted consumers, who took out large mortgages during the pandemic but were less prepared for the sharp rise in borrowing costs than Bay Street investors, Reuters reported.
Higher rates are also slamming the brakes on Canada's once red-hot housing market and, as consumers feel the pinch, could slow spending on travel, dining out and luxury goods.
The central bank raised its policy rate by 100 basis points to 2.5% on Wednesday, its largest increase in nearly 24 years. Its aim is to crush hot inflation, which hit a four-decade high of 7.7% in May, with the bank promising more hikes to come. read more
Money markets are betting on three more increases this year to get the policy rate to 3.5%-3.75% by year-end. 0#BOCWATCH
"There's going to be a lot of pain out there. And I think the bank is underestimating the risks to both housing and consumption," said Stephen Brown, senior Canada economist at Capital Economics.
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