Canada's Condominium Magazine

Canadian banks match Bank of Canada’s interest rate hike, impacting mortgages and loans

All five of the major Canadian Banks,  BMO, CIBC, Royal, Scotiabank, and TD, raised interest rates on their bank prime rates by a quarter percentage point. There is no difference now, in prime rate at the banks at 3.45 percent, up from 3.2 percent.

What does this amount to, for the average mortgage holder? A $300,000 mortgage (25 year term) can still get a good rate, but even after the last 3 rate hikes, the increase per month is approximately $100 — from about $1420 per month to $1535 (rounded).


Bank of Canada Governor Stephen Poloz announcing a quarter point interest rate hike on January 18, 2018.


Although it cuts into “affordability” for first-time buyers or over-leveraged home-owners, it’s all good news for the economy. The rate increase came on the back of the surging economy. The Bank of Canada is only incrementally increasing rates, and relative to the economy, the increases are conservative. There are more jobs, business and money in the Canadian economy. Cost of living — inflation — is also a factor.

“We saw the flow of good data coming in the last few months, “said Bank of Canada Governor Stephen Poloz. “Since last September, October. And today, what you do is you get a rate hike which basically validates what we’ve seen.”

The Bank of Canada is very upbeat about the economy, highlighting only one possible uncertainty —NAFTA. The Bank of Canada projects the economy will expand by another 2.2 percent this year (2018) and by 1.6 percent in 2019. These numbers are up from 2.1 and 1.5, respectively.

“Business investment has been increasing at a solid pace, and investment intentions remain positive,” Mr. Poloz said.


Bank of Canada rate hike announcement:


The Bank of Canada today increased its target for the overnight rate to 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent. Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity. However, uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA) is clouding the economic outlook.

The global economy continues to strengthen, with growth expected to average 3 1/2 per cent over the projection horizon. Growth in advanced economies is projected to be stronger than in the Bank’s October Monetary Policy Report (MPR). In particular, there are signs of increasing momentum in the US economy, which will be boosted further by recent tax changes. Global commodity prices are higher, although the benefits to Canada are being diluted by wider spreads between benchmark world and Canadian oil prices.



In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017. Growth is expected to remain above potential through the first quarter of 2018 and then slow to a rate close to potential for the rest of the projection horizon.

Consumption and residential investment have been stronger than anticipated, reflecting strong employment growth. Business investment has been increasing at a solid pace, and investment intentions remain positive. Exports have been weaker than expected although, apart from cross-border shifts in automotive production, there have been positive signs in most other categories.

Looking forward, consumption and residential investment are expected to contribute less to growth, given higher interest rates and new mortgage guidelines, while business investment and exports are expected to contribute more. The Bank’s outlook takes into account a small benefit to Canada’s economy from stronger US demand arising from recent tax changes. However, as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.

The Bank continues to monitor the extent to which strong demand is boosting potential, creating room for more non-inflationary expansion. In this respect, capital investment, firm creation, labour force participation, and hours worked are all showing promising signs. Recent data show that labour market slack is being absorbed more quickly than anticipated. Wages have picked up but are rising by less than would be typical in the absence of labour market slack.

In this context, inflation is close to 2 per cent and core measures of inflation have edged up, consistent with diminishing slack in the economy. The Bank expects CPI inflation to fluctuate in the months ahead as various temporary factors (including gasoline and electricity prices) unwind. Looking through these temporary factors, inflation is expected to remain close to 2 per cent over the projection horizon.

While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target. Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.


Auberge on the Park-Tridel


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