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On January 25, 2023, the Bank of Canada announced an additional increase in its Policy Interest Rate, with a hike of 0.25%, bringing the current rate to 4.5%.
Here are the key things you should know:
Why are rates increasing?
To combat inflation. When inflation gets too high (when too many dollars chase too few goods), the Bank of Canada may choose to increase interest rates. This is done 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, expect the interest portion of your payments to increase. If you have you have a fixed rate mortgage, your interest rate 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.
We’re here to help you navigate this. Contact your local credit union today.
If you’re interested in learning more about interest rates, check out anatomy of an interest rate and the low-down on interest rates.