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Canajun Finances Home » Interest Rates, What Did I tell You?

Interest Rates, What Did I tell You?

Not this month but maybe….

So on Tuesday morning, the Bank of Canada made the statement that their key overnight rate was not going to change this month (i.e. for May), but they also said this might be the last month with no change.

In response to the sharp, synchronous global recession, the Bank lowered its target rate rapidly over the course of 2008 and early 2009 to its lowest possible level. With its conditional commitment introduced in April 2009, the Bank also provided exceptional guidance on the likely path of its target rate. This unconventional policy provided considerable additional stimulus during a period of very weak economic conditions and major downside risks to the global and Canadian economies. With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus. The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 per cent inflation target.

That translates to, rates will be going up soon. I feel like the Priest from War of the Worlds, See What did I tell you?, but yes, the days of effectively money for free is going to go away real soon (read next month), and you can already see that with the banks already raising their interest rates in reaction to this possible interest rate hike.

This will also mean a much higher Canadian Dollar, unless the Fed in the U.S. raises their rates as well, which is less likely. Time to buy American for a while. Great deals to be had across the border.

Increased interest rates and the HST in Ontario, are going to make for an interesting consumer reaction for the summer months. I look forward to the letters to the editor with much glee and excitement.

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