Oil prices and your mortgage aren’t just two ships that pass in the night
The conflict in Iran has disrupted global oil supply, causing crude prices to surge from $70 to $100 a barrel, and subsequently leading to a 0.40% rise in 5-year fixed mortgage rates in Canada. The Bank of Canada's policy rate has held at 2.25%, but markets are pricing in a possible hike by year-end if inflation persists.
The conflict in Iran, which began on February 27, has disrupted global oil supply, causing crude prices to surge from $70 to $100 a barrel. This has led to a chain reaction, with bond investors expecting the Bank of Canada to raise its policy rate to tame inflation, resulting in higher bond yields and a subsequent 0.40% rise in 5-year fixed mortgage rates. Variable rates, which follow the Bank of Canada's policy rate, have not moved yet, but markets are pricing in at least one possible hike by year-end. The oil price spike adds a tax on businesses and consumers, potentially slowing the economy. Canada benefits from higher crude prices through exports, which could keep pressure on inflation. The Bank of Canada's next decision is on June 10, with some forecasts predicting a policy rate hike of 0.75% by year's end.
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