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When will Interest Rates Go Up?

15 January 2013

Last year whenever the subject of interest rates came up, you were sure to hear one thing: rates would remain at their historic lows until at least the end of the year. Well, now the year has come and gone, and now we’re all really starting to question when the interest rate hike is going to happen. The answer this time, depends on who you ask.

While it was previously thought that when interest rates did go up, they would do so gradually, starting at about one per cent. Now though, that prediction has been brought even lower by RBC, who thinks that interest rates will rise, and by the end of this year. But when they do, they’ll only go up half a percentage point.

“We’re looking for 50 basis points in aggregate tightening skewed toward the end of this year,” said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.

However at the end of last year, two other big banks – CIBC and Scotiabank – both said that they believed we wouldn’t see movement on the interest rate until the beginning of 2014. The International Monetary Fund has also said that would be a good time for a hike, and it should certainly come no sooner than the end of this year.

The fact that interest rates will remain at their historic lows for the first part of this year is practically a given, seeing as how Bank of Canada governor, Mark Carney is leaving the Bank in June, and his successor isn’t expected to make any big changes. After that, it’s largely what happens outside of the country that will dictate when rates rise.

The $110 million in spending cuts that still need to happen through government programs in the U.S. will have an impact, as will the decision regarding the looming debt ceiling deadline. Both of these will have a significant impact on the U.S. economy and, if it slows down too much, it will directly affect our export industry, and our GDP.

And that will all affect what happens to our interest rate.

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