Bank of Canada hikes rate, what it means for Canadians

Marco Green
July 13, 2018

The Royal Bank of Canada said Wednesday it will increase its prime rate by a quarter of a percentage point to 3.70 per cent, effective Thursday. According to ratehub.ca, a mortgage worth $400,000 amortized over 25 years with a 5-year variable rate of 2.50 per cent, will now cost $50 per month or $600 per year.

After the fourth rate hike in the past year, it's the first time the rate has been this high since December 2008, and the central bank has signalled the upward trend is likely to continue. In particular, the Bank is monitoring the economy's adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.

The bank expects the negative blow of the trade policies to be largely offset by higher oil prices and the stronger USA economy - both of which, on balance, will benefit Canada.

Overall, it still expects average growth of close to 2% over 2018-2020.

Canadian businesses must also contend with the uncertainty surrounding the hard renegotiation of the North American Free Trade Agreement, for which talks have stalled.

The Bank of Canada also has its eye on how widening global trade disputes, including an intensifying battle between the US and China, will affect the world's economy.

"The US economy is proving stronger than expected, reinforcing market expectations of higher policy rates and pushing up the US dollar".

It was reasonable to think at the beginning of the year that the unknowns surrounding NAFTA talks could pause business investment and lead to a decline in activity, he said.

The Bank of Canada will also release its updated economic projections today in its latest edition of its quarterly monetary policy report.

So what does the rate hike mean for Canadians?

Economists anticipate several more hikes this year and in 2019.

Scott Hannah says higher interest rates have also helped to cool down the country's real estate markets, helping future homeowners. It's expected to settle back down to two per cent in the second half of 2019.

Other reports by Click Lancashire

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