Bank of Canada rate hike

Bank of Canada introduced new interest rate increase

Big news hit the market on Wednesday morning. Bank of Canada revealed an interest rate increase, its target overnight rate rose to 1 per cent. Canada’s biggest banks will in turn raise their rates to 3.2 per cent on Thursday, according to the recent announcement. Bank of Canada has already raised its target rate twice in the past two months. This changes the picture significantly for many Canadian borrowers.

canada rate increase

Economic environment

The Bank representatives believe that Canada is becoming more broadly based and self-sustaining. This calls for an action in the form of interest rate increase. The following economic indicators look reassuring: employment is solid and incomes are growing, which increases consumer spending and stimulates the economy. Business investments and exports are stable. Overall GDP is higher than anticipated, even though the rest of 2017 is expected to be slower in terms of economic growth. Real estate market is currently slowing down, as a result of important changes in policies introduced this and last year. Despite these changes, Canadian economic growth showed massive expansion of 4.5 per cent in the second quarter.

Canadian economy is currently holding strong positions on the global geopolitical and economic stage. Certain geopolitical risks and uncertainties caused the US dollar to weaken its dominant position, while the Canadian dollar has appreciated. Loonie hiked more than a cent to over 82 cents for one US dollar since Tuesday. Back in April, Canadian dollar was going against 73 US cents.

Considering good economic performance, Governing Council voted for removal of some of the monetary policy stimuli. Future monetary policies are yet to be announced, and it looks like decisions will be made along the way, guided by most recent economic factors and financial market outlook.

Wednesday morning rate hike caught many experts by surprise. Many believed that Bank of Canada would hold off rate changes until October. Ever since 2008 financial crisis experts have come to expect explicit announcements about the upcoming changes in policies. However, it seems like this might not be the case anymore. Bank of Canada stated clearly that there might be little to no forward guidance in the future, since decisions will be guided by most recent data and made quick, if needed. A new interest rate increase would not necessarily be communicated well in advance.

Future plans.

Bank of Canada reassured that given high indebtedness in the housing market, proper attention will be dedicated to sensitivity of the economy to higher rates. But what is the future monetary plan? Economists suspect that a new monetary policy stimulus is already in place, waiting to be revealed. Sooner or later Canadians will find out the exact intentions behind the sudden rate hike.

Any solutions?

Canadian consumers will feel the hit very soon. Borrowers with variable-rate mortgages and lines of credit tied to the prime rates charged by the banks should be especially concerned. The bulk of credit card interest is charged at a fixed rate, although some cards use variable rates. During the time of unstable housing market environment it is important to get help and professional advice from the most reliable teams on the market. Home and Mortgage Advice has received excellent feedback on their 10 years of work with clients all over the GTA. Our team provides mortgages and refinancing at the most competitive rates, and always looks out for the best solution suitable to your personal needs. Contact us today to inquire about the best options for your mortgage or investments.

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