Bank of Canada interest rate decision explained

The Bank of Canada held its overnight rate at five per cent on Wednesday, as Canada’s economy continues to slow and there are indications that supply and demand are now approaching balance.

The bank rate has been at five per cent since July – the highest level in more than two decades.

To find out what it means for Canadians CTV’s Alexandra Pinto heard from licensed insolvency trustee Doug Hoyes from Hoyes, Michalos & Associates Inc.

To start, what’s your reaction to this news? Are you surprised the Bank of Canada held the rate steady?

I think everyone expected it. I certainly did. I’m on record as predicting that interest rates have probably peaked out – I'll probably be wrong in that direction, but I think they are so high now that they are having a significant effect on the economy. The whole reason for raising interest rates is to slow the economy down. It looks to me like that's already happening. So I'm not surprised that they decided to not raise interest rates today.

Do you think are we’re at a peak? Can you see them raising it again?

Well, I don't think it makes sense for them to raise them again. But could they raise them again? Sure. Because I think part of the problem is the Bank of Canada tends to look at the past. They're looking at things like the unemployment rate and saying, ‘hey, it's not that bad. Maybe we need to raise rates to slow the economy down.’ Well, unemployment is a lagging indicator, businesses don't start laying off people until it's really really obvious that things are bad. So I worry that they're looking at the past to make decisions for the future. So yes, it's certainly possible that they could raise again, I think that would be a mistake, though.

In terms of what this move means for the average Canadian, what does it mean for families?

Well what happened today doesn't mean. What really a lot though is that it was 602 days ago that they started raising interest rates. So now we’re dealing with the cumulative effect compared to where they were back in March of 2022.

So my worry is that we are carrying a lot of debt and now the servicing costs on that debt is a lot higher.

I get calls every day from people who say, ‘Hey, my mortgage payment has gone up by $2,000, compared to where it was a couple of years ago.’ That's the real impact of this. It's not just what happened today. It's the cumulative impact. It's catching up to people and it's making it very difficult for people to balance their budgets.

If someone is kind of in that situation – they're struggling, they're having a hard time balancing their mortgage, groceries – what kind of advice do you have for someone who might be in that position?

Well, it's very difficult. The obvious things to look at are if they're downsizing, is now the time to sell my house? And I'm not saying you should or you shouldn't do that. But these are things to consider. If there's still equity in your house and you can sell your house and avoid those huge mortgage payments, that might be a good idea. And of course, can you find a place to rent? Well, that's a big problem too. So there's really no easy solutions for people.

What everyone is doing is cutting back where they can on their expenses, you’ve still got to eat but maybe you're not going out to a restaurant as often. Maybe you only have one car instead of two. It's looking at all of those different kinds of things, but it's difficult because unfortunately, expenses are going up a lot faster than our incomes are and that's what's causing the squeeze.

Debt problems don't go away – and as the carrying costs of debt goes up, it's just going to get worse and worse. So now's a perfect time to do whatever you can to reduce your debt because it won't get any better in the future.