Bank of Canada Interest Rate Increase Announcement
The Bank of Canada hiked its interest rate to 0.75% from 0.5%. This is the first increase in 7 years, amid expectations of stronger economic growth last year. Such a move is bound to increase the costs of mortgages, home equity lines of credit and other loans linked to the big bank prime rates
The bank of Canada cut interest rates by a quarter of a percentage point twice in 2015 to help the economy deal with a plunge in oil prices. The governor of the Bank of Canada said that any future changes to the central bank's key interest rates will depend on economic data in the months ahead. The bank also states that economic growth is broadnening across industries and regions, becoming more sustainable with both the goods and services sectors expanding
In its outlook for the Canadian economy, the Bank of Canada estimated growth of be 2.8% this year, 2.0% next year and1.6% in 2019. The hike comes as inflation remains below the banks 2% target. But it is belived the recent softness is temporary with the effects of food price competition. electricity rebates in Ontario amd changes in automobile pricing expected to fade. The bank expects inflation to ease further this year due in part to Ontario electricity rebates, but return to 2% by middle of next year.
The bank also says that it anticipates exports to pick up in the coming quarters and make an increasing contribution to growth, while business investment is also expected to rise. Consumer spending is expected to continue to be a significant contributor to the economy. However, the bank believes that high levels of household debt and a slowdown in the housing market will weigh on spending. The announcement follows signs that the housing market is adapting to government changes meant to cool the real estate sectors of Toronto & Vancouver and help improve financial stability.
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