Exploring the puzzling logic behind Canadian central bank policies

The Canadian central bank increased interest rates once more in an effort to maintain inflation close to its 2% target. The central bank alters its monetary policy to achieve this purpose.

This situation has occurred many times all across the world. Many consumers, particularly those with mortgages and debt, always found the rate increases perplexing.

A hot economy, according to central bankers, can be problematic. That’s what they say in their own words:

But if the economy is growing too fast, it could lead to rising inflation. So, we might raise the policy rate, which means: People and businesses pay higher interest on loans and mortgages.

A booming economy is… bad?

Canadian central bank view a too-rapidly expanding economy as a bad development because it may result in high inflation rates. The central bank will increase interest rates to fight inflation, which will compel consumers and businesses to pay more for loans and mortgages.

The central bank must act to discourage this kind of behaviour when the economy is booming, firms are growing, and more people are receiving higher wages. Apparently, for the sake of society as a whole, middle-class families who are already struggling to make ends meet must now make additional debt payments.

A homeowner who was fortunate enough to obtain a five-year variable rate mortgage at 0.9% on a house worth approximately $700,000 is now paying $1,317 more each month. Consider their contribution to a rising economy, which presumably enabled them to buy a home in the first place, to be their involvement in slowing it down.

People save more when rates are higher

People “tend to save more and spend less” when interest rates are higher, according to the Canadian central bank. But given that this is coming from the same organisation that is already requiring people to pay hundreds of dollars more on their mortgage, presuming they were fortunate enough to find an affordable home in the first place, it seems strange.

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