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18 Jan

The Bank of Canada Raises its Key Interest Rate

General

Posted by: Anne Martin

On Wednesday January 17, 2017, as expected, the Bank of Canada raised its key lending rate by one quarter point to 1.25%.  This would put the rate at the highest level since 2009 when the economy was faltering.  This was done even with the cloud looming over NAFTA negotiations.

Economists differ as to the validity of the increase.  We are hearing reports of the economy being in excellent shape with the lowest jobless numbers in decades but according to other economists predictions we may be heading for a slow down in housing markets due to interest rate increases and tougher mortgage rules that could take many prospective home owners out of the market.  Higher interest rates may amplify household debt or perhaps people will buy less and within their means, causing a reduction in consumption, which again is not good for the economy.

My gut says that there has to be a happy medium somewhere between consumerism and debt management where we can spend enough to keep the economy moving but not too much to put ourselves in too much debt.

We are expecting three rates hikes this year causing the overnight rate to increase to 1.75%.  Many lenders have already increased their prime lending rate to 3.45% increasing variable rate mortgages.  If you are in a variable rate mortgage, this is a good time to discuss your options with a broker.

As always, I’m still seeing people who want to consolidate their debt into their mortgages in order to reduce interest costs and improve cash flow.  I don’t think there will be an end to this option, especially if you have lots of equity in your home.

In my opinion, we are still in great shape. To put today’s rates in perspective, interest rates climbed to 21% in the early 1980s.  We are lucky to be living in a country where our government, no matter the party, is looking out for our interests to ensure this doesn’t happen again.

For more info on the rise in Bank of Canada rates check out this article by Dr. Sherry Cooper, economist Dominion Lending Centres.  https://dominionlending.ca/news/bank-canada-raises-rates-cautiously/