If Canadians aren’t getting the idea that they need to start paying off their debt and stop borrowing under low, low interest rates, they’re about to get a shock to the system. Mark Carney met with his policymakers at the Bank of Canada yesterday to decide once again, on the fate of the current interest rate in Canada. And while it’s going to remain at 1% for now, the time is coming when it will rise – and that time is coming sooner than we thought.
When the Monetary Policy Report was released in January, it was much more positive and optimistic about the domestic economy, as well as the global economies, that it had been in the years past during the recession. Now, as the world continues to recover and get back on its feet, it’s not surprising that this month’s announcement was followed by even more hopefulness.
The bank said along with the statement to keep interest rates the same, “The external headwinds facing Canada have abated somewhat, with the U.S. recovery more resilient and financial conditions more supportive than previously anticipated.” But it’s more than just what’s happening in Europe and the U.S. that are reasons for the sooner-rather-than-later rate hike – it’s what’s happening right here at home. The dollar has surged to $1.0099 USD; and the Bank has increased its projection growth up to 2.4% from the 2% they held it at in January.
But this time, will it stick? Even though the rates have been historically low since September of 2010, there was a time in 2011 when the BoC governor wanted to increase them. At that time, the Bank and Mark Carney had made comments indicating that the interest rate was going to rise. However, the European debt crisis followed shortly after those heady warnings, forcing Mark Carney to keep them low. Is that to happen again? Avery Shenfeld, chief economist at CIBC World Markets, thinks it might. “It’s deja vu all over again,” he says. “The Bank of Canada has reinstated its warnings that higher rates are on the horizon.”
Except for this time, they probably are. And while many took advantage of the low rates to get a fixed rate mortgage, those who are still holding variable rates on their Ottawa mortgages and second mortgages might soon have to start crunching some numbers.
