The widely expected hike is the first in seven years
For the first time in seven years, the Bank of Canada has raised interest rates.
Rates have increased 25 basis points from .50% to .75%
As stated in a release, “The Bank of Canada is raising its target for the overnight rate to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. Recent data have bolstered the Bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy. The Bank acknowledges recent softness in inflation but judges this to be temporary. Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time.”
While the Bank claims to see the economy in positive terms, they are projecting declining growth going forward: “The Bank estimates real GDP growth will moderate further over the projection horizon, from 2.8 per cent in 2017 to 2.0 per cent in 2018 and 1.6 per cent in 2019. The output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).”
Weak wages, serious debt problems
The overall context for this interest rate hike is an economy that is much weaker and more fragile than many of the elites seem willing to acknowledge.
First, wage increases have been lagging inflation, which means Canadians are getting poorer in real terms.
Furthermore, a recent report by MNP revealed that 27% of Canadians say they are already “in over their heads” on their mortgage payments, meaning the .25% interest rate hike could hit them hard.
Additionally, that same report stated “The vast majority of Canadians (77 per cent) would have difficulty absorbing an additional $130 per month in interest payments on debt.”
This increasing gap between the perception of the economy by those in power, and the reality on the ground for Canadians, only seems to be growing over time. If – as many expect – there are further interest rate hikes that take place without policies to put more money in the pockets of Canadians, serious economic trouble could be in store for this country.
Photo – Bank of Canada
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