Analysts and currency traders reading the economic tea leaves foresee another Bank of Canada rate hike that may translate into higher mortgage rates for homeowners with a variable rate mortgage. Financial news service, Bloomberg News reports that, “Canada’s currency reached a six-week high as investor risk aversion eased and traders bet the Bank of Canada will continue to raise interest rates while the Federal Reserve keeps borrowing costs near zero.”
The primary task of Canada’s central bankers is to guard against inflation, keeping it within a narrow range under 2 per cent. Not surprisingly, the fiscal challenges faced by the United States (far and away Canada’s largest trading partner) highlight the resilience of Canada’s resource-based economy and the strengths of both federal and provincial government balance sheets.
Bloomberg News reports that the Canadian loonie advanced against the U.S. dollar for a third consecutive week (to C$1.0329 per U.S. dollar on September 17) “as investors sought assets tied to economic growth.” Meanwhile, “(a) report on Sept. 20 will show that global demand for Canadian financial assets rose in July, according to the median estimate of four economists surveyed by Bloomberg News.”
With the OECD praising the fiscal management and stability exhibited by Canadian banks and fiscal authorities (even as it disparaged continuing high levels of household debt), and the continuing fiscal challenges (even potential stalemate) to federal and state budgets south of the border, there appears to be some continuing pressure on Canada’s central bankers to move its overnight lending rate higher.
The Bank of Canada has raised its key overnight lending rate (effectively, the rate that Canadian banks lend money to each other) three times already this year, the latest rate hike – from 0.75 per cent to 1.0 per cent – occurring on September 8. The next date that Canada’s central bankers meet to review its lending rate is on October 19. Homeowners considering refinancing their existing mortgages should consult their mortgage broker before that date.
