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Bank of Canada Raises Key Interest Rates to 1.75%

The Bank of Canada has raised its benchmark interest rate by a quarter of a point. This is the fifth time since last summer that the Bank of Canada has pushed up the cost of borrowing for Canadians.

 

The bank's current rate is now at 1.75 per cent. That's the highest it's been in almost a decade, dating back to December 2008.

 

The cost of loans linked to the big bank prime rates are headed higher in the wake of the Bank of Canada's decision to raise its key interest rate target by a quarter of a percentage point. The Canadian banks each raised their prime lending rates to 3.95 per cent from 3.70 per cent, effective Thursday, October 25, 2018.

 

The increase followed governor Stephen Poloz’s first policy meeting since Canada agreed with the United States and Mexico earlier this month on an updated North American free trade deal. The bank said the new trade agreement will reduce uncertainty, which it described as “an important curb” on business confidence and investment.

 

So far, the Bank of Canada has stated that Canadians have been making spending adjustments in response to earlier rate hikes and stricter mortgage policies — and credit growth continues to moderate. Household vulnerabilities — while still elevated — have edged down as a result.

 

Consumer spending is expected to continue expanding at a “healthy pace,” thanks in large part to the steady rise of incomes and the strength of consumer confidence. It projects exports to keep growing at a moderate clip, even though they will face limitations from several factors — including transportation capacity constraints, global trade uncertainty and stiff competition, particularly from the U.S.

 

Known as the target for the overnight rate, the benchmark is what Canada's big banks charge each other for short-term loans. It filters down to consumers, because it affects the rates the banks offer their customers for things like variable rate mortgages and savings accounts.

 

The Bank of Canada indicated that we could see continued rate hikes in the future, but it will consider how the economy is adjusting to higher interest rates “given the elevated level of household debt.”

 


 

NU-VISTA Premiere Realty Inc. Brokerage.

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London, ON N5Y 2L8
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