Bank of Canada: Interest Rate Increase on the Horizon
Like death and taxes, we knew it was coming. The Bank of Canada has finally signaled that an interest rate hike is coming as soon as June 1, but possibly as late as July 20.
The bank is currently citing a faster recovery from the recession than it originally anticipated and predicts that the economy will return to full capacity in the second quarter of 2011, as opposed to the third quarter.
The Bank of Canada has held its benchmark interest rate at 0.25 per cent, a record low – and quite literally, as low as it can go – since April 2009 and had pledged to keep the interest rate at the same level until the second quarter of 2010, with a small caveat regarding inflation.
Bank of Montreal’s deputy chief economist, Doug Porter, speculated that the Bank’s latest statement essentially makes a June rate hike likely and that an increase of 50-basis-points wouldn’t be unthinkable.
With banks hiking interest rates in the past couple of weeks it’s no surprise that the Bank of Canada is going to be true to its word with an interest rate increase.
Of course, a large percentage of the economy has been driven by home buyers taking advantage of the historical low interest rates on mortgages. What will happen to the rest of the economy if mortgage holders become house poor due to rising rates? Have we allowed Mark Carney and his “extraordinary guidance” to move the economy forward in a time of recession or have we made it worse?
At the very least, the time of cheap money looks like it’s coming to an end.
