The Bank of Canada’s Target Rate up .25%

July 12th marks the Bank of Canada’s first announcement of a hike in the policy interest rate which is the target for the overnight lending rate. This is the first increase to the policy interest rate in 7 years.The overnight rate influences consumer loans and mortgages and can also affect the exchange rate of the Canadian dollar. What does this mean for you? If you have a mortgage or are considering refinancing or purchasing a home now is the time to speak with a Mortgage Professional. The prime rate used by banks/lenders to determine variable rates & lines of credit interest rates, alongside personal loans, car loans and business loans are all based primarily on the prime rate.So how does the prime relate to the overnight lending rate? The overnight lending rate determines what banks can lend one another overnight to keep a balanced banking system within our nation, which prime is determined based on. This will most likely result in an increase to prime which will be discussed over the coming weeks and will be issued by the Big 5 Banks.

Why the Increase?

The financial report from the Bank of Canada and press release provide the following key reasons for the increase in the policy interest rate: – Growth in the Global Economy – US Economic Growth & Steady Incline – Robust Canadian Labour Rates & Expected Growth – Strong Investment Position & Rates of Return – Above Average Expected Euro Growth.

Policy Interest Rate…

The government expects for us to see increased growth in labour and employment sectors, business growth, investment positions strengthening and a stronger position within the export division globally. They expect the absorption of excess capacity by experiencing a stronger & faster response in regards to potential outputs.It is interesting considering the following: softened inflation, GDP growth & a lag in the market in comparison to our US neighbors who have witnessed a strong incline in job creation, investment returns, and exports. Although employment & wages are up across the board in Canada they expect this to slow over the horizon. Our robust market as stated in the press release is strongly due to household spending & the housing sector which is highly leveraged expected to soften.

Expectation Key Determinant in Policy Rate

They have stated the following expectations: – Increased exports & investments – which will contribute to the anticipated broadening in the composition of demand, helping to sustain economic expansion as growth in both residential investment and household consumption slows. – GDP expected to expand by 2.8% in 2017 before a slow decline in 2018/2019 as illustrated in the chart below. o Domestic demand was strong in 2017 picking up 3.7% in the first quarter, consumption strengthened, housing rose sharply, and investments in the oil and gas sector rebounded. o It is key to note that outside of resources the exports/investments remained soft. – CPI – Consumer Price Index Inflation has been soft recently due to their following reasons: o Food Prices have recently declined due to supply & pricing. o Electricity – ease in energy inflation & tax rebates on Electricity in Ontario o Automobile Prices declined & excess supply It is great to see that the expectation for growth in both the Canadian dollar, exports, rise in employment and the resource sector, alongside investment & business growth. These are all signs of a strengthening economy & health. It will be interesting to see which direction the market goes alongside whether the forecast will pan out. It will be of key importance to the shift and direction of our localized economy in Canada. Any questions or if you want to discuss in greater detail please give me a call, text or email. I have included some charts & statistics for your reference on the following pages. Don’t panic. Keep Calm & Call your Mortgage Professional.