The Bank of Canada raised its key interest rate today by a quarter of a per cent. BoC increased the rate to 1.25% from 1.00%. This is the third key interest rate increase in under a year. It’s also the BoC’s third increase since the record low key rate last summer, which long sat at 0.5%.
As predicted the BoC made the increase in light of a growing and healthy Canadian economy.
What does the key rate increase mean for you?
The key interest rate increase means that people borrowing money can expect to pay more. The interest rate affects loans and mortgage rates meaning that borrowers will be paying more in the coming years. Though the interest rate increase is extremely beneficial for those with investments in savings accounts and GICs.
Why the key interest rate increase?
In light of gross domestic product growth, a growing and healthy job market and an increase in living costs, the bank was expected to make this move. The Canadian economy is estimated to have grown by 3.0% throughout 2017.
In an accompanying Policy Monetary Report the national bank made changes to the Canadian economic forecasts. BoC expects the Canadian economy to grow 2.2% this year and 1.6% throughout 2019. This is an increase from a previous forecast expecting an economic growth of 2.1% this year and 1.5% throughout 2019.
More key interest rate increase to come
In light of a healthy Canadian economy, the BoC will most likely continue to keep pace with their steady increase. After an estimated 3.0% economic growth throughout 2017, the first quarter of 2018 is expected to be hold pace with growth and slow down later into the year.
The next possible key interest rate increase is March 7th or April 18th.
Future increases are no guarantee
The result of the coming NAFTA renegotiations could alter or slow the pace of the BoC's key rate increases. Though Trump has stated he plans to leave the agreement if things did not go his way.
NAFTA renegotiations, which started in August last year, are expected to carry on throughout the first quarter of 2018. An extended reach for renegotiations which were aimed to be finished the end of last year.
The outcome from the renegotiations will have an impact on the future of Canada's economy. So if things go south for Canada, figuratively, we can expect the BoC to slow it's interest rate pace to match a slowed or hindered Canadian economy.