Interest Rate Hikes

The Bank of Canada announced this morning that it has raised the key overnight lending rate for the sixth time this year, as it attempts to get inflation under control amid criticism the hikes could push Canada into a recession.

Here are 5 Points You Should Know about this hike

• In July, the Bank shocked the Nation by raising the overnight rate by a full percentage point, to 2.5 per cent. The Bank also raised the rate in March, April, and June, by 25, 50 and 50 basis points, respectively. Since March, the Bank of Canada has raised its key interest rate to 3.75 per cent from 0.25 per cent, making it more expensive for Canadians and businesses to borrow money.
• Most economists had expected this interest rate hike, and many were calling for a larger 75-basis-point step, but most analysts had been predicting a rise of 50 basis points.
• Last week, Stats Canada announced that the broader measure of inflation, the Consumer Price Index had risen by 6.9 per cent in September compared to a year earlier. That was a minor drop from the 7 per cent annual significant inflation rate seen in August. But some aspects of the CPI (namely the cost of food) continued to rise more than expected. In September, the cost of food continued climbing, rising by 11.4 per cent year over year. That’s the highest annual rate of food inflation since August 1981. It was also the tenth straight month groceries have risen higher than the headline CPI number.
• Commercial lending rates are higher than residential mortgage rates but lower than construction loans. Lenders assess the property’s income-generating potential and the borrower’s financials.
• Most commercial lenders can provide you with a maximum loan-to-value (LTV) of 85% with a 25-year amortization. However, CMHC-insured commercial mortgages can have an amortization period of up to 40 years.

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