Ashleay: Welcome to iA Financial Group's "In Your Interest!" podcast, where we aim to share with you the essentials of economic news and its impact on your finances. My name is Ashleay and this week I'm in remote mode and we're talking about rising rates. So Sébastien, as always, it's great to have you back for our summer capsules. And Sébastien, I'll be honest, I'm a little bit confused. I thought we were expecting a halt to all of these rate hikes in the last few months that we've been having. So maybe can you shed some light on what's happening and tell us what our options are if we need to open or renew our mortgage?
Sébastien: Yeah, these are very good questions. As we started 2023, the Bank of Canada started the year in January with another rate hike and said that it would be entering a pause starting from then until they have more clarity on the cumulative impact of all of the hikes that had been done since March of 2022. So they entered a conditional pause, let's say. The pause was relatively short because they exited from it in June. And then we had a second consecutive increase only a few weeks ago in July. As we're recording this, it's late July. We've had two more rate hikes back to back in June and the following month. So since March of 2022, it's 4.75% of cumulative hiking that we've seen from the bank. So that's 19 hikes of 25 basis points that we accumulated. So that's one of the biggest cycles in history. And remember that last year in the summer we had some jumbo hikes and in July of 2022, we had four hikes in one, which was 100 basis points of hiking at once. So that was a lot of hiking. Now to see how the economy is digesting all of that, well, if we put ourselves in the shoes of the Governing Council at the Bank of Canada, well, you look at multiple things. You want to see inflation slow down in a sustainable way. Now, we did touch 2.8% inflation in June, which is within the band of 1% to 3% that the Bank of Canada has as a target. So maybe we could say, well, mission accomplished. But even the bank was very clear that it's not mission accomplished. We haven't seen the inflationary factors subside in a sustainable way. And even if we look at the scenarios, if we look forward by the end of the year, we do expect that likely June will have been the trough for the year on inflation and that we could end the year at about between 3.5% to 4.5% at least. This is what we foresee today with the information that we have. So the fight on inflation is not done yet. They are looking at the economy. They see that the impact on the demand for consumer credit is becoming pretty clear. There's less demand for credit. So that's a good sign for the Bank of Canada. But we do have the real estate that rebounds, a sector that rebounded quite a bit, with immigration being so strong. Of course, we always ask the question, well, we want to have strong immigration, but where are we going to put all of these new immigrants? Do we have enough housing for them? So this is pushing housing prices higher. So this is not something that you want to see. If you're the Bank of Canada, you want to see the real estate sector cooling off. Companies say that they're less confident about the future, but sales remain strong so far. Employment remains strong. So it's kind of a mixed bag. So that's why the Bank of Canada came out of its pause. And if you come out of the pause, you don't hike just once. Likely you hike at least twice. Now, the markets are not pricing in any more hikes by the end of the year, but it will all depend on how the data unfolds. But it's still a prepare to stay with elevated interest rates for the coming year or two. This is becoming pretty clear. So when we look at the surveys, we see less investment intentions from businesses. We see that businesses are less worried about labour shortages. So it seems that monetary policy is doing its thing, but it takes between 18 and 24 months to have the cumulative impact of every hike. We've been very vocal on that in previous podcasts, so we're just still in a wait and see mode. If we have a recommendation to make to the Bank of Canada, it would be to be patient. Only time will tell if it was a mistake to hike the ring the last two months in June and July, or if it was the right thing to do. We don't know yet, but we would advocate patience because of the delays that are long and unpredictable. So to get back to the initial question. If you have to open or renew a mortgage now, it's probably time to sign for a long-term variable rate. Let's say if you want to have some stability in your rate, if you want to make sure that your payments are fixed for a few years, then you can go fixed. But we recommend that you go fixed for, let's say, a maximum of two years because we know that the peak in interest rates is approaching or maybe it's already in. Rates will have to decrease in the next few years because the cumulative impact of all of this tightening will slow the economy down. So likely interest rates will fall over the next few years, maybe not in the next 12, 18 or even 24 months, but after that it should move lower. So signing long-term variable might be the thing here. But, you know, one thing is clear here. If you sign at these levels fixed for several years, it could be a costly decision that you regret down the road.
Ashleay: Well, thanks, Sébastien, as usual. You helped us understand everything a little bit better. And to all our listeners, thank you for being here. If you enjoyed this episode, please share it and we'll see you next week. Love this podcast? Want to know more about economic news? Follow our "In Your Interest!" podcast available on all platforms, visit the "Economic News" page on ia.ca or follow us on social media.