The Bank of Canada increased the bank rate .25% today and most banks will likely follow with a .25% increase in the prime rate to 3.20%.
1) The last 2 rate increases of .25% take back the same drop in rates in 2015 which was meant to be a temporary measure due to low oil prices. The prime rate has not been above 3% since December 2008.
2) U.S. Federal Reserve has tempered their talks on rate increases because the economic numbers have not been as strong as they expected
3) There still remains a lot of uncertainty about the long term political and economic climate around the world
4) Inflation remains low and low inflation means no pressure to increase rates
5) Experts are saying that these rate increases are expected to have an impact on the economy in about a years time, they are not immediate
6) Canadian and provincial government debt loads are very large and further increases would have an impact on their bottom line not to mention the debt of Canadian consumers.
Based on these key points, I would expect the talk of any further rate increases in 2017 and into 2018 to slow. Some have even commented that rates could decrease again in the future.
Here is today’s announcement from the Bank of Canada:
The bond market has a direct impact on fixed mortgage rates. Lenders 5 year fixed rates range from 3.09% to 3.29% and bond market confidence for investors in Canadian bonds due to higher rates could send these rates higher. The fixed mortgage rates don’t always follow the Bank of Canada rate trends.
Here are some recent articles worth exploring if you are so inclined.
Prediction that higher rates won’t last.
US likely to delay raising rates
Reason for rate increase today
Predictions of US not raising rates for a year or more
The next Bank of Canada rate announcement is set for October 25.