Bank of Canada Raises Rates – What Next?
Yesterday the Bank of Canada (BOC) finally made good on their promise to raise rates and they bumped the overnight lending rate up by .25%. If you are not familiar with the overnight lending rate….it is the rate the Bank of Canada charges Canadian banks to borrow money. In turn the banks use this as a benchmark for setting their prime lending rate. As a result of the BOC increase Canadian lenders have raised their prime rates from 2.25% to 2.50%.
Can We Expect A Drastic Increase in Mortgage Rates?
No. Sure we are going to see rates go up….after all we can’t expect to keep rates at recent low levels indefinitely, but it is most likely not going to be a quick rise.
Do Recent Events in the European Economy Have an Impact on Canadian Rates
Yes. In today’s global economy what happens in Europe, Asia, the US…etc does have an impact on Canada’s economic decisions. In fact the reason we are expecting variable rates to climb slowly in the coming years is due to the impact of the US’s financial situation. Although their economy appears to be recovering, if you dig deeper you will see a major part of that recovery has been driven by Obama’s stimulus program. Unfortunately the stimulus program comes to an end this summer and will probably result in a slow down of the economy. Because of this Canada needs to be careful when it comes to raising rates. If we raise our rates too quickly it will result in an increase in the value of our dollar. In turn this will make our goods more expensive to US clients which will reduce demand for our goods and ultimately result in a slow down of our manufacturing sector.
In a nutshell, if you are currently in a variable mortgage….hold tight. There is no need to panic and lock in. Even with the slight increase in prime, variable rates are still at an all-time low. If you are considering a variable mortgage, go for it. There is still plenty of time to enjoy the low variable rate before it climbs past where fixed rates are today.
If you would like to chat more about your situation, please feel free to call me or send me an email.
Related articles by Zemanta
- Bank of Canada raises rates as expected (ritholtz.com)
- Canada increases interest rates (news.bbc.co.uk)
- House prices to drop next year as sales slow (financialpost.com)
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