The Bank of Canada (BoC) has announced it’s keeping its trend-setting interest rate on hold for now, but borrowing costs for many Canadians are likely going up.
Canada’s central bank has mentioned it is holding its key interest rate at 0.25 per cent, where it has been since March of 2020, hinting instead, that the first interest rate hike could take place as soon as the April-to-June quarter of 2022. Analysts had previously expected rates to begin rising from record lows in the second half of 2022, meaning there could be implications for current and prospective borrowers.
This rate increase would influence the cost of loans and credit with variable interest rates, such as variable-rate mortgages and most lines of credit.
Another type of interest with implications for mortgages is rising. That’s the yield or interest rate on Government of Canada bonds, which is a key benchmark Canadian lenders use to determine the interest on fixed mortgage rates.
On Wednesday, the BoC said it was ending its quantitative easing programme, which bought $5 billion of government bonds weekly to help provide cheaper borrowing and help the economy during the first phases of the COVID-19 pandemic.
However, now that the economy is recovering, the central bank is ending its bond-buying spree. This will reduce demand for government bonds and put pressure on yields.
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