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06 Sep

Interest Rates Rise for the Second Time in Weeks

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The Bank of Canada (BoC) has done it again – raised its benchmark interest rate by 25-basis-points to 1 per cent for the second time since July. The decision came days after some impressive numbers were released by Statistics Canada showing the economy’s growth of 4.5 per cent last quarter, contrary to the expectations of many experts who weren’t anticipating this move until the fall.

Doug Porter, Bank of Montreal chief economist, is not counting out another rate hike before the end of the year.  Said Porter, “Given today’s abrupt hike, with no prior communication since the previous meeting, and the bank’s seeming care-free stance on the soaring Canadian dollar, we can’t rule out anything in coming meetings.” Data compiled by Bloomberg gives a two-in-three chance of the BoC doing just that.

The BoC is carefully trying to temper this speculation by saying that future policy decisions haven’t been set, but will be determined as economic data becomes available. This is particularly important as they keep a close eye on inflated levels of household debt and the impact higher interest rates may have on families.

The Bank of Canada noted strong business investment and exports, robust consumer spending, and solid employment and income growth as evidence of the stronger-than-expected economic performance, which are being cited as reasons for today’s rate increase. Although the BoC mentioned a cooling in the housing sector in some markets as a notable exception to the economic growth, today’s interest rate increase may just be the catalyst to unleash pent-up buyer demand in the housing market in Simcoe County.

“As we saw happen in Vancouver, the tax-induced housing correction we are experiencing is likely temporary. It lasted approximately six months out west and now homes are selling at record high prices. In Ontario, the rise in interest rates could speed up the recovery time and push buyers off the fence,” says Mark Faris, Chief Executive Officer and Broker, Royal LePage First Contact Realty The Faris Team.

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