How the Bank of Canada's Interest Rates will Affect You

The Bank of Canada has decided to hold interest rates at their current rate for September, though a rate hike in October seems likely. 

Global News writes, "despite the uncertainty around NAFTA, the BoC appeared to take comfort in the fact that business investment and exports are increasingly stepping in as engines of economic growth. Meanwhile, the bank said, the housing market has begun to stabilize after higher interest rates and changes in housing policy like the tighter federal mortgage rules that kicked in on January 1st, 2018.Canadian families are also adjusting to higher interest rates, with the household debt-to-income ratio beginning to edge down, the bank said. At the same time, a healthy job market and higher wages are helping to support consumption."

Right now the interest rate is 1.5%. The reason why rates may change come October is to adjust for inflation targets. Canada's central bank notes, "although consumer price inflation climbed to three per cent in July, which is above the BoC’s target of two per cent, the central bank noted that the increase appeared transitory and driven largely by costlier airfares amid high gasoline prices. Inflation should move back toward two per cent in early 2019."

A third rate hike in just one year seems dramatic for many Canadian's who are used to seeing those interest rates go down, not up. However, analyst Sean Cooper notes, "with unemployment rate at a 40-year low and Canada boasting the strongest growth among all the G7 countries, the Bank of Canada has recently felt confident enough to raise interest rates again."

It may seem greedy, but remember: the Bank of Canada has an extremely important role in our economy. Cooper writes, "it’s in charge of monetary policy, which is no small burden. The bank’s current goal is to keep the inflation rate between one and three percent—a low and stable rate that helps steadily grow our economy and create jobs. An economy that grows too quickly can lead to some of the pain points that many Canadians are experiencing right now: high levels of household debt."

Finding the right balance is difficult, especially when unexpected swings in the market occur. However, by understanding why rates are staying the same, rising or lowering, you can better make confident financial decisions, particularly relating to your real estate portfolio. 

For more information on how the Bank of Canada's interest rates will affect you, read Sean Cooper's full article HERE.

You can also read Global News' statement on the interest rates HERE

Your Real Estate Professional,

Ken Richter

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