As expected, the Bank of Canada increased the prime lending (overnight rate) to 1.75%, a 0.25% increase in prime.

Chartered banks are likely to start increasing the prime lending rate today to 3.95% from current 3.70% and thus an increase in borrowing on variable rate mortgages and lines of credit.

The economists, including Dominion Lending Centre’s Dr. Sherry Cooper, have mentioned the central bank stated it would return the overnight rate to a neutral stance, dropping the word ‘gradually’ that was used to describe the upward progression in yields since this process began. Market watchers will certainly note this omission. For the first time in years, the Bank has acknowledged it expects to remove monetary stimulus from the economy entirely. 

For Canada, the neutral rate is estimated to be between 2.5% and 3.5%, which implies that at a minimum, three more 25 basis point rate hikes are likely over the next year or so. 

Dr. Cooper’s summary and “bottom line” conclusions are:

Bottom Line: The Bank of Canada believes the economy will grow about 2% per year in 2018, 2019 and 2020, in line with their upwardly revised estimate of potential growth of 1.9%. The Bank asserts that mortgage tightening measures of the past two years have “reduced household vulnerabilities,” although the “sheer size of the outstanding debt means that vulnerability will persist for some time”. That is Bank of Canada doublespeak. What it means is expect three more rate hikes by the end of next year.

Be prepared for more increases and always best to consult with me as to how this impacts you, your clients, friends and family menders and always remember to select a mortgage term, then look at fixed or variable rates depending on your individual strategy for the subject property that you are financing.

A link is below to Dr. Coopers statement on today’s announcement is below.