Bank of Canada increases overnight rate target to 1.25 per cent.
The Bank of Canada led by Governor Stephen Poloz increased the benchmark overnight rate to 1.25 percent. This is the highest since the global recession in 2008 and their 3rd hike since July.
To read the full press release directly from the Bank of Canada click here.
The BoC concluded their press release with the following regarding future increases:"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."
There is a lot of noise that accompanies Bank of Canada rate decisions so it's important to keep a cool head. The BoC clearly projected that they would increase the prime rate early in 2018, so this decision does not come as a surprise.
While some banks and markets have priced 1 to 2 more increases this year (50-75bps) I don't believe that they are automatic. There is still a lot of uncertainty in the Canadian economy relating to NAFTA, below target inflation and the effects further rate increases will have on Canadian households who are among the most indebted in the world.
I recommend you take a quick look at the following video featuring my favourite Canadian economist Avery Shenfeld from CIBC.
While this segment was shot prior to the rate announcement I'm particularly fond of Avery's take on future expectations beyond this hike.
What Does This Mean For My Mortgage & Loans?
The retail prime rate will likely increase by +0.25% to 3.45%. The exact change will be announced by each lender and bank in the coming days.If you are in a variable rate mortgage or line of credit your monthly payments will increase by about $13/mth for every $100,000 of debt you carry. Based on a 25 yr amortization period.
Is Now The Time To Lock-in?
There is no simple answer to this question. My advice is dependent on the circumstances of each individual.
In general if you are in an existing mortgage mid-term I don't recommend locking-in. However if you are seeking a new mortgage or have a very small discount off of prime it might be worth talking about.