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On April 18, 2018, the Bank of Canada (BOC) decided to hold its key interest rate at 1.25% but warned of hikes to come in the future. They cited the Canadian real estate market as a factor in this decision.
“Slower economic growth in the first quarter primarily reflects weakness in two areas,” BOC wrote in its release.
“Housing markets responded to new mortgage guidelines and other policy measures by pulling forward transactions to late 2017. Exports also faltered, partly owing to transportation bottlenecks. Some of the weakness in housing and exports is expected to be unwound as 2018 progresses.”
The mortgage guidelines and other housing policy measures were referenced as well in the March 2018 BOC announcement.
The lack of change means that those with variable-rate mortgages, or those who are up for mortgage renewal, have more time to lock in to a fixed rate if they so choose before interest rates increase again.
The recent quarterly MNP consumer debt index survey found that 43% of respondents said they are already feeling the effects of higher interest rates in Canada. 51% said they fear the rising interest rates could affect their ability to pay down debt. One-third of the respondents said the rising interest rates could possibly push them toward bankruptcy.
One thing BOC made clear in the April 18 announcement is that more interest rate increases are coming.
“Some progress has been made on the key issues being watched closely by Governing Council, particularly the dynamics of inflation and wage growth,” BOC stated.
“This progress reinforces Governing Council’s view that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.”
Despite the housing market cool off in the beginning of the year, BOC expects inflation and wage growth to pick up the slack in the coming months.
Experts are predicting there will be more interest rate increases in 2018. The next BOC announcement is scheduled for May 30.
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