Is 2015 the Year Where Canadian Interest Rates Finally Budge? Maybe.
One of the many factors that impacts the Canadian economy, businesses, and homeowners’ decisions to invest in real estate are interest rates. For the past few years, Canadians have enjoyed record low interest rates, especially for mortgages and personal loans. In a time when the Canadian economy has been down, low rates are set to encourage people to gather debt and feed the economy.
Interest rates have remained stable over the past few years. In fact, the Bank of Canada hasn't moved the key interest rate since September 2010, and by early January, the current pause will become the third longest in its 80-year history, says Andy Blatchford, in Interest rate hike: Is 2015 the Bank of Canada’s year to budge.
However, 2015 could be the year when interest rates finally nudge upwards. This is a good thing, says McGill University economics professor Christopher Ragan. "It is signaling a stronger economy," he states.
With the Canadian and US economies showing signs of recovery, this year could finally be the year where we see interest rates rise. While the rise in rates could negatively impact people or businesses that have accumulated a significant amount of debt while it’s been cheap to acquire, a slight rise in interest rates should be easily absorbed by the majority of consumers.
Don’t expect rates to balloon as they did during the 1980s. Traditionally, when interest rates go up, they only increase by 0.25% at a time. If it were to increase by a larger number, expect it to happen over a period of time, starting in mid to late 2015, according to most forecasts.
There are others who believe interest rates will remain the same for the foreseeable future. “Economists like David Madani of Capital Economics expect Poloz (Bank of Canada governor) to stand pat for a while, even after the U.S. Federal Reserve starts hiking its own key rate. He predicts the forces pushing Canadian inflation upwards to remain fairly subdued in 2015, which he says will keep the central bank in a ‘holding pattern’ for the whole year,” says Blatchford.
What does a rise in interest rates mean for the average Canadian?
Expect to see borrowing rates for things like car loans and mortgages increase, something that could create another minor barrier for first time homebuyers and people in the market for a new car. The degree to which the rise in interest rates impacts you will be dependent on the size of the rate increase, and if you have debt, the amount of debt you are currently carrying.
Will interest rates go up in 2015? Maybe. Maybe not. The economy is tough to predict, and only time will tell if interest rates go up and by how much they will increase.
Do you think interest rates will go up in 2015? Tell us about your predictions for interest rates in the coming year.
Read more about interest rates and real estate in 2015
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