On July 12, 2017 the Bank of Canada adjusted the key interest rate to 0.75 percent from 0.50 that it has been. This rate has been in place since 2010.
Consumers Worried About Interest Rate Hike Impact.
As expected, higher interest rates will lead to higher borrowing costs. This will affect mortgages, though mainly those with variable rates, credit card and line of credit loans. However, there should be no impact on car loans as these are usually a fixed rate.
The brunt of the impact will probably be to 35-50 year olds, known as Generation X, who likely see the most significant amount of household debt and have been quoted as living “paycheck to paycheck”.
The Bank of Canada though believes this to be the exception as household spending has risen consistently and continues to rise.
Additional Increases To Come
Experts believe there are more rate increases to come. A second rate hike of ¼ percent is expected to happen in October.
In an interview with CBC news, Craig Wright, Chief Economist with Royal Bank was quoted as saying, “I think it’s the Bank of Canada having Confidence that the breadth and durability of the expansion of Canada can sustain these small increases in interest rates.”
Interest rates have remained neutral for seven years. I guess an increase was inevitable!
The Silver Lining
As with everything in life there is always a silver lining! Higher interest rates could mean a greater incentive to save money. It may also change Canadian’s spending and borrowing habits. Even so, these effects are likely to be quite minimal with an increase of only 0.25 percent.
The other half of the silver lining is the appreciation of the Canadian Dollar. It was trading at 78.70 cents US when the interest rate hike was announced. At the time of this publication the dollar was listed at 79.41 cents US. This is great news for those wishing to travel!
Whether you see the rate increase as a positive or a negative, prepare yourself for more to come. We have been spoiled by neutrality for the last seven years but the times they are a changing – for the better I hope.