If you are in the market to borrow money, things just got harder and things will probably continue to trend this way according to forecasts.
The Bank of Canada upped its key lending rate to 1.25 per cent on Wednesday morning, from 1 per cent, raising it to its highest level since 2009. The move was expected by experts and their analysis is that the era of super-low interest rates that we have been enjoying is slowly coming to an end.
“Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity,” the bank said in justifying the hike. However, uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA) is clouding the economic outlook.”
If you currently have a fixed rate mortgage you will not be affected until the renewal comes up. However those with variable rate mortgages, HELOCs (Home Equity Lines of Credit) and personal lines of credit can expect their interest rate to rise by a quarter point next month. It’s this group that will feel the immediate impact of the rate hike.
Housing and consumption will stall
The bank said in its announcement that it expects the economy to slow down this year from the fast pace it saw in 2017. It expects consumers who already have record-high debt loads — to pull back on spending, and it expects residential investment to slow as the housing market cools.
But business investment and exports will pick up the slack in 2018, the bank forecast.
More Hikes Expected
The bank also confirmed what experts have been saying and that is that this likely won’t be the last rate hike this year. But it did sound a cautious note, suggesting rates may not rise quite as quickly as the markets expect.
“While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target,” the bank said.
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