This week The Central Bank of Canada raised its overnight interest rates for the first time in seven years from 0.50% to 0.75%. This announcement comes just a month after the US Federal Reserve raised rates from 0.75% to 1.25%. The overnight rate determines how frequently banks lend money to other banks.  More cooperation between larger financial institutions has the potential to entice investors and bring new capital into the country. For average consumers, the increase will likely mean paying more for certain types of borrowing such as variable-rate mortgages, lines of credit, and student loans. Although this will surely be burdensome for some on an individual level, such increases generally signal a confident, strong economy. The Central Bank released a statement regarding the increase calling the economy “robust” and the update “long expected.”

The Canadian economy is currently experiencing a period of rapid growth for the first time since the 2008 recession, so the financial sector is considering the decision a possible omen of things to come globally.

 

By: Christine Belusko