The latest rate hike by the Bank of Canada is putting the onus on farmers to plan further ahead to stay on top of the financial impacts.
The central bank’s policy rate increased a further 75 basis points on September 7 to 3.25%, or 13 times the rate on March 1.
It’s the fifth consecutive rate increase this year, with the intent being to curb consumer spending and rein in inflation even as the outlook for global growth weakens.
The combination means agricultural businesses will need to sharpen their pencils, says Farm Credit Canada vice-president and chief economist JP Gervais.
“The bank statement is quite clear this morning: more will be needed,” he says. “It’s paramount that people have a good risk management plan and understand what the exposure is to elevated borrowing costs that last.”
While domestic and international demand for food remains strong, supporting farm incomes, high input costs have meant narrowing margins for many producers. While there’s been some relief recently, Gervais says producers need to be prepared for ongoing volatility.
“Inputs have been coming down, which is a good sign,” he says. “But I think there’s a lot of planning that needs to go into next year already given that there’s still a war in Ukraine and given that Russia holds a lot of cards when it comes to fertilizer, when it comes to different kinds of commodities.”
The Bank of Canada has eight scheduled announcements each year regarding its policy rate. The next announcement this year is scheduled for October 26.
The rate aims to limit annual inflation to 2%. The bank’s core measures of inflation in July were between 5% and 5.5%.