Interest rates may go low again, says the IMF

High interest rates are hurting wallets, but there may be an end in sight.

Driving the news: The International Monetary Fund (IMF) says increases in borrowing costs are likely to be "temporary" once high inflation is brought under control—though when that will be is still anyone’s guess.

  • The Bank of Canada has been hiking rates since March 2022, taking them from 0.25% to 4.50%. At today’s rate decision, markets expect the Bank to hold steady. 

Catch up: The IMF points out that advanced economies, like Canada, have gotten pretty comfortable with low interest rates. Until rates started rising in 2022 to fight inflation, they had been steadily declining from levels in the high teens (in the 80s and 90s) to near-zero. 

Why it matters: Higher rates have reverberated across the economy, deflating high-flying companies in tech, crypto, and the financial sector that proved to be creatures of zero-interest-rate policies. 

Even Canada’s frothy housing market has felt the pinch of more expensive money, though it hasn’t done much to make homes more affordable.

  • Per an RBC report, the 15% drop in nationwide home prices from 2022 peaks has been more than offset by more expensive mortgages, with ownership costs as a percentage of median Canadian income for a single-detached home hitting ~70%.

What’s next: The IMF says there will be many long-term factors influencing whether rates come down from ageing populations, to migration, to tax and spend policy, and economic growth.—SB