Today the Bank of Canada raised the rate .25% which has come as no surprise if you have heard the news over the last few weeks. This is not the time to panic but instead to employ patience and a little bit of long term/big picture thinking. Until we see a long term trend with rates increasing a Variable rate mortgage is still a good option. Here is a quick number for you, for every .25% increase in rates, an additional $12.54 is paid in interest for every $100,000 owed.
Here is today’s announcement from the Bank of Canada:
Here’s why there has been a lot of debate about whether the Bank of Canada would increase rates or not:
- Inflation last month was 1.5%, well below the target rate of 2% which the Bank of Canada has always indicated is the line to watch
- Canadian dollar has been strengthening and is currently around .77 USD and increases in rates would push the dollar higher and make Canadian imports to the US less attractive (Donald Trump wants that if he continues his protectionism talk of US industries). These companies in Canada are currently driving our economy.
- Sub $50 oil has created weaker economies in places like Alberta and Newfoundland. This has an impact on our economy
- Canadian GDP has been strong but this is just one factor
- Canadian consumer debt load has been in the news for so long the government seems determined to slow spending in housing and other industries, we better hope business spending can keep the economy going if consumer spending slows down. In the announcement today, the Bank of Canada even commented on consumer spending.
While it is difficult to say that this low end of the cycle of interest rates, keep in mind that the prime rate actually decreased by .50% in 2015. A couple of small increases this year just takes back that temporary measure from 2015. The key is to watch for the long term trends in rates. Until then, no one seems convinced this is the long term trend yet.
Here are some recent articles worth exploring if you are so inclined.
The next Bank of Canada rate announcement is set for Sept 6.
Please feel free to reach out to me with any questions.
Daryl Harris, AMP