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On July 12, 2023, the Bank of Canada announced an additional increase of its Policy Interest Rate with a hike of 0.25%, bringing the current rate to 5%.
Here are the key things you should know:
Why are rates increasing?
Simply put, to combat inflation. When inflation gets too high—in other words, when too many dollars chase too few goods)—the Bank of Canada may choose to increase interest rates. The increase is designed to encourage saving rather than spending and help improve the balance between supply and demand.
How will this impact my finances?
Rate increases will make borrowing more expensive, affecting interest costs for mortgages, home equity lines of credit, credit cards, student debt, and car loans.
- If you have a variable-rate mortgage, the interest portion of your payments increased on July 13. If you have a fixed-rate mortgage, the Bank of Canada’s rate increase will not affect your interest rate, which will remain the same for the remainder of your term.
- While rate hikes can help combat inflation, Canadians are still feeling the hardship.
- If interest rates increase more than is expected by the market, most investments will decline in value.
- On the brighter side, higher interest rates may help your savings, specifically, how much interest you earn in your savings account.
Are more rate hikes coming?
Eight times per year, the Bank of Canada makes decisions about the interest rate according to a variety of factors like inflation, strength of the dollar, and the overall economic outlook. Their next update is scheduled for September 6, 2023, and while no one can say for sure, it’s speculated there are more hikes coming.
Will interest rates ever come down?
Eventually, interest rates are expected to come down, but it’s impossible to speculate when exactly that might happen.
What should I do?
It is a difficult time for many Atlantic Canadians, which is why we recommend contacting a trusted financial advisor who can help assess your personal outlook and map out the best path forward. If you don’t yet have a personal advisor, we would be pleased to set you up with one. Find your local credit union and set up a meeting at your convenience.
If you’re interested in learning more about interest rates, check out anatomy of an interest rate and the low-down on interest rates.