To no one’s surprise, Bank of Canada (BoC) raised the interest rate from 0.25% to 1.5%. This is par for the course since the Canadian economy has been expanding for some time. They also predict the economy will continue growing through 2020. The interest spike is also a way for the Bank to combat the rising inflation rate which has shifted above its 2% target.
The job sector has also improved by adding over 32,000 jobs in June alone.
Due to the ongoing U.S. trade wars, most economists believe the Bank will not raise interest rates again in 2018. It’s risen twice this year. In fact, the BoC gave strong hints that it may even cut rates if trade talks get worse.
BoC goes on to say if the ongoing trade uncertainty and the tariff battle with the U.S. continue to linger that it could have an adverse affect on economic growth by as much as 0.7% in 2020. On a positive note, higher oil prices is bound to mitigate some (or all) of this damage.
Canadian growth will continue to see larger contributions from exports and business investment with less from consumer spending due to the higher interest rates and more strict mortgage rules.
For GICs, which have fixed rates of return, they often rise with interest rates.
Anything with a variable rate will also go up (e.g., lines of credit, business loans, HELOC). So if you have a variable rate mortgage it will most certainly go up, which means you will be paying more each month. Most credit cards have a fixed rate and so won’t be affected by the increased rate.