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Rising Bank of Canada interest rates force difficult mortgage payments on Saskatchewan homes

Canada's central bank has unleashed another round of interest rate hikes, bringing the key lending rate to 4.5 per cent. THE CANADIAN PRESS/Justin Tang

The Bank of Canada has once again raised its key interest rate for Canadians.

The central bank raised its policy rate to 4.5 per cent in its first decision of 2023, an increase of 25 basis points. This is the highest the Bank of Canada’s key rate has been since 2007.

However, some Saskatchewan researchers don’t believe the increase will have a large effect on the economy.

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“I don’t expect it to have a huge impact on Saskatchewan’s economy,” said Jason Childs, an associate professor of economics at the University of Regina. “We’re still going to be driven largely by commodities, and services are going to still play a big role. I don’t see that quarter-point change really making or breaking either of those industries.”

One area it will affect is housing.

“It will continue to slow down housing and soften the demand for housing,” Childs said. “So if you have a house for sale, you’re probably not going to get as much for it as you would have two years ago.”

Perhaps where it will be felt most is with variable-rate mortgages.

“This quarter point today is going to mean about another $60 a month on a typical $250,000 mortgage,” Childs said. “But if you’re getting hit with that three per cent change all at once, that’s going to be a lot bigger. That’s going to be several hundred dollars a month more coming out of your pocket.”

Click to play video: 'Bank of Canada raises interest rate to 4.5 per cent, signals pause on hikes for now'
Bank of Canada raises interest rate to 4.5 per cent, signals pause on hikes for now

Childs said while a variable mortgage was popular in years past, high interest rates may be turning people away from it.

“With a variable rate mortgage, you’re carrying all the risk,” he said. “If interest rates go up, you’re going to get hit with that right away. If interest rates go down, well, you benefit, right? You’re going to pay less.… Ultimately, when you get down to it, you’re going to pay for it sooner or later. It’s just a matter of how much and when.”

Read more: 22% of Canadians say they’re ‘completely out of money’ as inflation bites, poll finds

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A new Ipsos Public Affairs poll conducted exclusively for Global News suggests a growing proportion of Canadians (22 per cent) are “completely out of money” to the degree that they would not be able to pay more for household necessities.

That’s due in large part to inflation.

“Over the next few years, no province is going to be immune to the effects of rising interest rates, elevated inflation, housing markets that are weaker and a global economy that is softer,” said Marc Desormeaux, a principal economist with Canadian economics at Desjardins.

Wednesday’s decision marks the eighth consecutive time the Bank of Canada has raised the cost of borrowing, hiking the benchmark rate a total of 4.25 per cent in the past year in an effort to tamp down inflation.

Click to play video: 'What to expect from inflation, interest rates in 2023'
What to expect from inflation, interest rates in 2023

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