27 Jul Bank of Canada hikes interest rates
The Bank of Canada has recently hiked interest rates which will result in higher borrowing costs for consumers with variable-rate mortgages, loans, and lines of credit.
The Bank of Canada’s decision to raise interest rates was the fourth increase over the last twelve months. The rate, which has been increased from 1.25% to 1.5%, is the highest rate Canada is seeing since December of 2008.
After the move was made, several banks stated that they will increase their prime rate. The Royal Bank of Canada, TD Canada Trust, Bank of Montreal, Bank of Nova Scotia, Canada Imperial Bank of Commerce and National Bank will increase their prime rate to 3.70 per cent. The previous prime rate was 3.45 per cent.
The decision is supported by the argument that Canada has a strong, driven economy that will remain unaffected by the change. Those with money in savings accounts and GICs will benefit, along with seniors who depend on interest income to assist in funding their retirement expenses. The higher interest rates and stricter mortgage rules as of this year have also helped to cool the country’s real estate market.
Where come benefits, also come disadvantages. Variable-rate mortgages will face higher interest payments, and the new hike also raises the cost of borrowing for customers with variable-rate loans. This change could potentially create more debt in households.
This is the central bank’s first interest rate move in six months, and we have yet to see how it will affect Canada.