Date Posted: October 24, 2018
As expected, the Bank of Canada has moved ahead with another increase of 0.25% to the target rate in a decision released today bringing the overnight target rate to 1.75%. “They said they feel pretty good about the economy, now that politicians in Canada, Mexico, and the United States have agreed on a revised trade agreement, and that evidence suggests Canadian households are adjusting well to higher borrowing costs. Policy makers raised their outlook for business investment and exports, suggesting the economy is becoming less reliant on debt-fuelled spending and the housing market.”
Bank of Canada Governor Stephen Poloz has stated that interest rates will need to return to a normal range where the cost of money is neither stimulating expansion nor curbing growth. “The central bank estimates that “neutral” interest rate — which Poloz has characterized as “home” — is something between 2.5 per cent and 3.5 per cent.” This speaks of more rate increases to come.
What does this mean for variable rate mortgages and variable rate loans? As past history has dictated, prime rates will also likely increase by 0.25% with the majority of lenders and institutions bringing the prime rate up to 3.95%.