“Someone’s sitting in the shade today because someone planted a tree a long time ago” – Warren Buffett
Bank of Canada Raises Overnight Rate to 1.50 Per Cent
The Bank of Canada, as widely expected, hiked its benchmark interest rate on Wednesday. The rate now sits at 1.50 per cent. Two key growth engines – business investment and increased exports – pushed the BoC to raise their key rate.
In its policy statement, the BoC said “The composition of growth is shifting. Exports are being buoyed by strong global demand and higher commodity prices. Business investment is growing in response to solid demand growth and capacity pressures, although trade tensions are weighing on investment in some sectors.”
Record-high household debt levels will be pressured with the rate increase as servicing costs will be driven upward. However, households have reacted to previous rate hikes in the last year, as the numbers show a deceleration in debt accumulation and by extension, household spending. The unexpected growth of business investment and exports picked up the slack, and helped solidify the BoC’s rate hike decision. Future rate hikes were not ruled out.
On the street, Canadians can expect to see further increases to mortgage rates as well as variable lines of credit such as HELOCs. Before taking on increasing debt, you should strongly consider the potential impact on servicing costs, especially considering the possibility of future increases.
Sources: Advisor.ca, Financial Post
The information provided on this blog is intended for informational purposes only and is not intended to constitute financial, accounting, and legal or tax advice. For information specific to your situation you should consult a professional.