Rate Update – I’ll Take That Back Now Thank You
July 12, 2017
BOC Governor Takes A Breather
October 25, 2017
The Bank of Canada (BOC) raised the prime rate by 0.25% today taking the last of the 2015 emergency stimulus out of the system. The rate increase was expected to happen in October, however, the economic growth seen over the summer was enough for the BOC to make the move today.
So why is today’s rate increase a good thing? The first reason is it confirms that the economy is finally finding its footing. Some of the key points in the BOC news release shows that the economy is growing in a self-sustaining manner, which is important given the NAFTA discussions, Tropical Storms and North Korea.
The second reason is though the economy is growing, inflation is still below the BOC’s 2 percent target. This suggests that we are seeing slow and steady growth which gives the BOC the luxury of monitoring the economy and making calculated adjustments vs. stomping hard on the brakes with several rate increases to cool things off. Judging from today’s news release the BOC seems content to sit back for a while before they consider raising rates again.
Though we’d all love to have low-interest rates forever, it comes at the cost. The longer rates stay ultra low, the larger the price to be paid down the road. A series of small increases now is the perfect way to make sure the pot doesn’t boil over.
Key Points From The Bank of Canada Announcement
- Prime rate raised by 0.25 percent
- Global economic expansion is becoming more synchronous
- Business investment continues to grow
- Rising commodity prices providing economic support
- Housing is cooling in some markets
How Your Mortgage Is Impacted
- Banks will likely increase by another 0.25 percent
- Fixed rates remain unchanged at the moment
- Variable mortgage rates discounts expected to increase
- Rate holds for purchases or maturities now available until the beginning of December
Interest rates for the next quarter
The closing paragraph of today’s BOC statement will likely reassure the bond market, which means that rates could stay the same for the short term. But for how long will be determined by how much unemployment falls and wages grow over the next six months.
The next Bank of Canada meeting is October 25th, 2017
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