Bank of Canada raises rates again, now at 1%

The Bank of Canada announced on September 6, 2017, it was further raising its trend-setting overnight lending rate from 0.75% to 1%. The rate rose by 0.25% in July, meaning the latest September increase fully unwinds the half-percentage point by which the Bank dropped interest rates in early 2015 after oil prices suddenly dropped in late 2014.

The Bank recognized Canadian economic growth continues to come in stronger and more broadly based than it had previously predicted—just as it did in July, when rates rose for the first time in seven years. Even so, the Bank is still suggesting the pace for future rate hikes “will be guided by incoming economic data and financial market developments as they inform the outlook for inflation.”

The Bank said it remains wary about risks to the Canadian economic outlook posed by protectionist U.S. trade policy and high Canadian household indebtedness. This means it will remain cautious about making further interest rate increases.

As of September 6, 2017, the benchmark five-year lending rate stood at 4.84%, which is the rate used to qualify mortgages with less than a 20% down payment. The rate is 0.2% higher than when the Bank made its previous interest rate announcement on July 12 and versus one year ago.

Canada’s major chartered banks have recently raised their advertised five-year fixed mortgage interest rates, which now range between 2.99% and 4.84%. However, actual five-year fixed mortgage interest rates can be negotiated below advertised rates depending on mortgage applicants’ creditworthiness and the degree to which they do other banking business with the mortgage lender.

The next interest rate announcement will be on October 25, 2017. The Bank of Canada’s next Monetary Policy Report, which updates the Bank’s economic forecast, will be released on the same date.

(CREA 05/09/2017)