Bank of Canada hikes interest again
The Bank of Canada has raised its key rate for the third time in seven months, from 0.50% last June to 1.25% yesterday. And the escalation of the rent of money is not over, far from it.
This is obviously bad news for borrowers whose bill of interest charges will inevitably climb. The victims are numerous. Just think of the holders of mortgages, personal loans, commercial loans or industrial loans.
And unfortunately for them, it will get worse, because the rates will continue to increase over the next few semesters.
Management rate
By the end of the year, the Bank of Canada’s key rate could reach 2.00%, compared to just 0.50% in June 2017.
This is notably what the economist Paul-André Pinsonnault of National Bank Financial Markets provides. For the rest of the year, he anticipates three further rate hikes in the coming quarters.
For his part, Desjardins Senior Economist Benoit Durocher estimates that at 1.25%, the key rate “is still well below the neutral rate,” which, he says, is between 2.50% and 3.50%.
That is why he also believes that further increases “will be needed in the coming quarters to tighten monetary conditions” in the country.
The rise in interest rates is attributable to economic growth. And it aims to limit inflationary pressures.
At 1.25%, the key rate is still far from the 4.5% it had reached in the summer of 2007, just before the financial crisis of 2008-2009 began. In December 2009, it had dropped to 0.25%.
Consequences
Any rise in the key rate inevitably has an impact on the interest rate grid.
Take a mortgage. Assuming mortgage rates rise by one percentage point in the course of the year, this would result in a monthly increase of $ 52 to $ 57 per $ 100,000 mortgage, amortized over 25 years. On an annual basis, we are talking about a mortgage cost increase ranging from $ 624 to $ 684.
At first glance, it’s not the end of the world. But it all depends on the financial room for maneuver that we have. As we know, many households are heavily indebted. And the slightest additional expense may put them in trouble.
Of course, personal, commercial and industrial loans will all follow suit.
This is more than ever the moment to negotiate as much as possible the conditions of its loans to minimize the increases.
Winners
But the rate hike will be greatly appreciated by investors who rely on conservative investments such as GICs and bonds issued by Épargne Placement Québec to grow their savings.
And among the winners are found retirees who fear like the plague the stock market and equity mutual funds.
Conservative savers can at least start protecting their savings against inflation.
Doris’s passion for writing started to take shape in college where she was editor-in-chief of the college newspaper. Even though she ended up working in IT for more than 7 years, she’s now back to what he always enjoyed doing. With a true passion for technology, Doris mostly covers tech-related topics.
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