Rising interest rates across Canada will burden Canadians to borrow money for housing and make many other debt-based purchases. Read more below to find out why immigration could be the solution.
On 26 October, the Bank of Canada (BoC) increased the policy interest rate by 50 basis points, to 3.75%.
2022 has been a year of consistent interest rate hikes, as the BoC has been raising its policy interest rate throughout the year in an effort to aggressively combat inflation in Canada. Initially, when first reported on January 26, the BoC’s policy interest rate for the beginning of the year was 0.25%. Since then, the rate has increased by at least 25 basis points with each increase.
A policy interest rate is a reference point, set by the Bank of Canada, that informs consumers the interest rates charged by banks on mortgages and lines of credit across the country.
What this means for consumers will depend on whether they are borrowing money from the bank (the ‘borrower’) or if they are able to save their money (the ‘saver’), but the following outlines those effects. What are the implications of Canada’s current interest rate conditions. on both these groups.
Savers: With interest rates increasing, banks can now (though they are not obligated to) raise savings account interest rates proportionately to match interest rates on borrowers, especially if there is competitive pressure on these institutions. is put.
Borrowers: As an example, homeowners are likely due to see an increase in debt or they may struggle to get a new loan because of rising interest rates. For example, a homeowner who is ready to renew his fixed-rate mortgage may be facing a more expensive monthly payment. Similarly, variable-rate mortgage owners may see increased payments over time that reflect these new policy rates.
Why are interest rates rising?
Now that we’ve covered what’s happening with interest rates in Canada, let’s talk about why.
Simply, interest rates are eventually rising to bring down inflation. Essentially, this is an attempt to stabilize the economy as higher interest rates would discourage consumers from borrowing money as they would now have to spend more money to do so. The purchase of goods will decrease accordingly, as will the demand in general. Subsequently, consumers’ chances of saving money will increase as interest rates on savings products also rise. These measures will slow and stabilize the economy for the betterment of all Canadians in the long run.
For now, though, interest rates may continue to rise in the short term for a while – but potentially not for as long as once expected (but more on that later).
Are rising interest rates negatively impacting immigration to Canada?
Considering the impact of economically rising interest rates on Canada’s population, it may seem reasonable to expect such economic uncertainty to discourage immigrants from coming to Canada, or at least leave them open to their other options. To give reason to think about it a little more. , Fortunately for Canada’s economic and social prosperity, this is not the case.
After a period of slow immigration due to border closures and pandemic restrictions, Canada’s immigration numbers are starting to work their way back to normal. In fact, in 2021 Canada welcomed its largest number of immigrants to date in a year. More than 405,000 permanent residents cumulatively exceeded the previous record set in 1913.
In other words, immigration to Canada is not adversely affected by rising interest rates, and things are looking bright for the country’s immigration future. This positive outlook is confirmed by Canada’s immigration goals over the next few years, set out in the Immigration Level Plan for 2022-2024 by Immigration, Refugees and Citizenship Canada (IRCC).
As part of that plan, Canada wants to welcome more than 430,000 immigrants annually between now and 2024.
2022 end-year immigration target: 431,645
2023 immigration target: 447,055
2024 immigration target: 451,000
Canada’s next immigration level plan for 2023-2025 will be announced by November 1, 2022.
Note: Immigration targets for 2023 and 2024 may be revised as a result of the new level of planning, but the target set by the IRCC should remain high, as Canada seeks to increase immigration to lower numbers during the pandemic and further brighten Canada. looks for. economic and social future by welcoming newcomers to this country.
If rising interest rates aren’t hurting Canadian immigration, what do these two things have to do with each other?
Contrary to the negative correlation that some might assume between interest rates and foreigners visiting Canada, economists such as Stephen Brown of Capital Economics point to the idea.
That more immigrants coming to this country could help Canada lower interest rates sooner than other countries.
Research from Statistics Canada shows that immigrants play a big role in addressing Canada’s labor shortage. If indeed, research published in June of 2022 indicates that 84% of the increase in Canada’s labor force during 2010 was by immigrants. Accordingly, higher levels of immigration into Canada in the future may help ease pressure on the labor shortage across the country – a move, though a significant one, to ultimately lower interest rates on travel to Canada.
Welcoming more immigrants is expected to help counter Canada’s high job vacancy rates and ease the burden of rising wages on Canada’s economy. As newcomers to Canada will help weaken labor demand by reducing job vacancies across the country, experts say Canada can expect low interest rates to play a key role in the economy’s eventual stability.
Additionally, Brown predicted that more immigration would mean that “rental price inflation [is likely to … slow in 2023”. In other words, the increased number of property rentals – expected with more immigrants coming to Canada – could help regulate overall pricing over time, thereby increasing the country’s housing market to the benefit of the economy. More stability can be added.
Ultimately, this means that the expected influx of Canadian immigration in the coming years could be beneficial to all who call this country home – not just immigrants who come to Canada in search of a better life, but economics throughout the country. approach as well. ,