By now you are probably well aware that Canadian interest rates have increased already once this year. . . with July being the first increase in seven years. With the benchmark interest rate moving upwards from 0.5% to 0.75%, this has already had various implications for Canadian borrowers.
While borrowers are beginning to adjust to the new interest rate and what it means for their current and future credit needs, there is also speculation of another interest increase this year.
So why another interest rate increase so soon after the first one?? Well, typically there are specific reasons why the government of Canada may decide to adjust the key lending rate, including how we had previously seen it continue to decrease in recent years.
Ultimately, tracking these patterns can be an important part of identifying when interest rate changes are likely to occur.
To help become more informed about these occurrences, here are 3 signs interest rates may rise again in 2017.
1) The Economy is Growing
One main reason that the Bank of Canada typically opts to increase the interest rate is as a result of a growing economy. Alternatively, in the presence of a struggling economy, as seen as recently as 2015, the interest rate is likely to be lowered.
As projected, the economy is expected to grow this year to 2.8%, with another 2.0% increase in 2018. By 2019, it has been estimated that economic growth in Canada will increase by another 1.6%.
While various financial experts don’t believe the change in interest rate increase is anything to really fret about, it ultimately does reflect economic growth across the country.
2) Household Debt is High
A second indication that interest rates may continue to rise can also be linked to the growing level of Canadian household debt. When interest rates are lower, it is common for borrowers to run out and take on more credit before it increases.
Since lower rates are more attractive to borrowers, it then makes sense that higher interest rates can be used to deter them from extending their credit. The government is fully aware of this reality and may use this as a strategy of discouraging further borrowing.
Therefore, being aware of rising household debt loads can also help inform us that the government may be preparing to raise the interest rates for even a second time this year.
3) The National Housing Market is Overvalued
Finally, with a booming housing market spreading across the country for the past few years, this has certainly created some interesting conditions for homeowners and potential homebuyers alike. Toronto and Vancouver especially, have recorded some historical price increases, even as recent as this April and May.
Since then there have been certain interventions imposed as a response to these outrageous prices, by way of the foreign buyers tax and the new mortgage lending rules, housing prices have finally begun to slow down. With that being said, the housing market is still seeing upward movement, albeit at a slower pace than in it did in previous months and years.
However, there was another change that very likely contributed to this slow down as well – the interest rate increase we saw this July. That said, if the interest rate was also responsible for bringing about a slight housing correction, perhaps then another interest rate increase this year may also play a role is slowing it down even further?
If this is the case, then the current housing market movements can also perhaps be used as another sign that we might be in for another raise in interest rates before the year is over.
In the end, what will be, will be. However, if you want to try and predict when and if interest rates will go up, there are plenty of signs that can point towards this occurrence, if of course, you know what to look for.
It is always a good idea to track the growth of our economy and to understand the many related intricacies as they can have significant impact on our lives. In turn, knowing when interest rates will rise is also a vital part of the equation as it can have many implications for us over time, including helping us to prepare for all of the important financial decisions we will need to make in the near future.