The policy interest rate is the fixed interest rate set by a financial institution for a country or group of countries. This determines how much it will cost to borrow money from a central bank.
The Bank of Canada is the one that is regulating our county’s economic activity. Once the Bank of Canada sets the policy interest rate, all other financial institutions use it to set the interest rate on loans offered to clients.
The increases in the rate we are seeing today are attempts to counteract rising inflation.
Most people will be affected by the increase by having to pay more interest on their loans. The majority of households and businesses will reduce their expenses when this happens causing the demand for goods and services to decline. While, in turn, prices of those goods and services stabilize.
Some things to consider:If you are planning to buy your first home, you may have to re-evaluate your budget for the first few years.If you have a variable rate mortgage, the monthly payments will increase. Fixed mortgages will only be affected on renewal.If you invest in GICs or Canadian bonds, you will likely see higher returns. Where you may see the value of mutual funds drop.The prices of food, gas and other goods should begin to stabilize.
If you are planning a major renovation, you may save money by postponing the project. What does this mean for you? Take some time to think about your current projects and future plans so that you can make informed decisions.
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photo by Andre Taissin on Unsplash
photo by Andre Taissin on Unsplash