Bank of Canada hikes key interest rate to 1.5%

The Bank of Canada has raised its benchmark interest rate 50 basis points to 1.5 per cent and signalled that more hikes are on the way. The decision by the central bank was widely expected as it moves to aggressively rein in high inflation.

Now as expected canadians who are carrying a lot of debt are finding that load feels heavier the bank of canada has pushed up its overnight interest rate by 50 basis points to one and a half percent cbc business reporter jeannie lee is on this story for us so this genie is the third time the bank has raised rates in three months what difference will this latest hike

Make well we’ll definitely feel the difference arthi when the prime lending rate at the chartered banks go up based on this bank of canada move that tends to follow any kind of bank of canada announcement the chartered banks will then announce their prime lending rates will go up probably accordingly so far none has made the first move yet but we are watching

For that but no question anyone who has a lot of debt the more debt you have obviously the more you will feel this latest rate hike don’t forget that things like variable rate mortgages the payments might not change but the interest portion goes up meaning less of your payment goes towards your principal anyone with an adjustable rate mortgage will feel this

Immediately when it comes to their payments and of course those popular lines of credit even more popular during the pandemic those payments will definitely go up so here’s what happened if you look at this graph i marked out for you exactly how the key benchmark rate at the bank of canada has performed in the last uh uh year and a half or so remember you know

Rates were at rock bottom 0.25 percent in the first two years of the pandemic slashed there to emergency levels to avoid a major recession and of course that fend inflation and so in march a little rate hike a typical one of 25 basis points and then since then two in a row hikes of 50 basis points so that one and a half percent is six times what it was just

13 weeks ago so here’s a look at an example um i picked one of the out of the air 100 000 let’s say you owe that so for every 100 000 you owe the interest portion you know which may vary depending on the product that you’re borrowing and the rate that you have the interest portion that is caused by these rate hikes by the bank of canada basically um goes from 250

A year to fifteen hundred dollars a year so it’s you know gone up by a factor of six that starts to hurt especially when you consider that a lot of people owe way more than a hundred thousand dollars are they and jeanne that comparison is already pretty scary to look at for those who would be in that situation the question is too how much more should people be

Bracing for you should brace to sweat even more under that debt load because the bank of canada is now on a mission to fight inflation which we know is at uh you know 31-year highs and looks to be you know pretty stubborn at these levels and so you make it more expensive to borrow money that tends to discourage demand that tends to then dampen prices and that’s

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How you bring down inflation so here’s what the bank is saying about that specifically the pace of further increases to the policy rate will be guided by the bank’s ongoing assessment of the economy and inflation and the governing council is prepared to act more forcefully if needed so there’s your warning more forcefully a lot of economists expect the bank to uh

Keep raising until that benchmark uh rate uh one and a half percent today goes up to about two and a half percent so there’s still quite a lot of more sweat shall we say to come alrighty genie thanks for this that is genie lee reporting so of course as we heard interest rates are rising and so is the cost of living many are struggling and that may be particularly

True for younger generations how to navigate these challenging times for more on that we’re joined now by jessica morehouse she’s a personal finance podcaster as an accredited financial counselor in toronto she’s here to share some tips with us jessica thank you for joining us thanks for having me as we just heard the bank of canada has raised interest rates three

Times recently and there has been indication that they could keep going higher how should people prepare yeah um so i know people are feeling the pinch and as was said earlier you’re going to continue to feel this pinch maybe a little bit bigger of a pinch moving forward in the next couple months and the rest of the year so how can we all prepare i think first

Off taking a look at what is going on your money going on with your money i think a lot of us have no idea really where every dollar is going and so i always encourage people take this as your uh you know signal to take a look at your spending your budget you know crack open that excel spreadsheet put it everything in there to see is there something that we can

Cut out so we can now make room and kind of ease that cash flow again a lot of people are feeling the pinch myself included i’m one of those you know uh homeowners that does have a variable uh mortgage rate and so i’m definitely kind of concerned and so the best thing that we can do is taking a look at what’s happening and what can we actually do believe me there

Is always something in your budget or your uh you know spending that you can cut that you will not miss i always kind of tell people instead of thinking about what you should you know cut out based off what you know popular opinion take a look at what you actually value what you need and what you can easily live without that is a great easy way that you can kind

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Of start freeing up some cash so you can afford you know things that are more expensive and kind of these uh higher interest rates so then give us some examples uh jessica what have you been doing differently well i will say i’m definitely kind of taking that signal from the bank of canada to uh ease up on uh any of my borrowing and you know focusing on spending

And so if anyone has uh debt for example especially one that is really tied to the key interest rate and the prime rate uh this may be your uh kind of opportunity to take a look at hey how can we uh you know pay this debt off a little bit quicker maybe you didn’t have necessarily a firm you know debt repayment plan this would be the time to do it especially with

Those lines of credit that i think people will feel a bigger impact within maybe your kind of 30-year mortgage you know again it won’t really affect your day-to-day it affects the principal not your payments those mortgages but for uh you know your line of credit this may be uh you know something that you want to focus on paying off sooner rather than later um so

That’s definitely one kind of suggestion i would have for people who are dealing with debt but uh otherwise i think a lot of people are wondering what should they do with their money and well the bank of canada wants us to stop borrowing as much and start saving so we can get inflation uh back on track into that kind of neutral level and so uh you know one good

Thing out of this interest rate hike that most people i feel like don’t really uh think too much about is savings rates or savings interest rates rather are going up same with gic so you know at least you can earn a little bit more money uh you know interest on your savings and uh hopefully you know maybe again this is another opportunity to take a look at your

Budget see what do we want to save for and um and what uh bank is offering the best interest rates now maybe this is a good way to do some shopping around you know you mentioned jessica that you’re also a homeowner and so mortgage is something that you’re thinking about anyone who has one certainly is looking at that as we look at the rate hike so i guess part

Of the question here is if people are buying home now or let’s say they’re refinancing the mortgage that they have how should they approach that at this stage absolutely well if you really don’t have a huge risk tolerance then i think a fixed rate will make more sense for you because you know exactly what’s going to happen for the entire term of your mortgage but

For me i knew that there was a chance that interest rates were going to continue to go up throughout 2020 too and so that is why i chose a variable i knew the risk but i knew also historically long term if you choose a variable rate you could save a lot more money and so that’s what i did but again you kind of have to understand what your your risk tolerance is if

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Hearing these headlines every couple months is giving you anxiety maybe a fixed rate makes uh more sense for you so now in this sort of post-pandemic semi-post-pandemic uh life that we’re existing in the question is what has changed compared to if we were in this scenario uh pre-pandemic or at the height of the pandemic for example i’d say one thing that uh you

Know people may not really realize is we are in a much better position now than a couple years ago especially in terms of uh earning more income so again one way to combat you know interest rates rising and high inflation is to earn more money and you know it may not seem like oh it’s so easy to make extra money but it actually is so much easier especially when you

Compare uh now to the the great recession when it was really tough to find uh work now there’s so many more opportunities with apps and just uh you know if you have a skill you can go on upwork and sell your services i know so many people lost their jobs you know people that i know personally that lost their jobs due to the pandemic and they’ve completely changed

Careers and were able to do that from the comfort of their own home or start their own business just from their computer so i always kind of like to you know share you know although there’s you know it’s kind of a tough time for lots of people we’re all feeling it there’s also kind of a brighter side there are some opportunities out there you just kind of have to

Look for them and so finally looking ahead how long is something like this going to last people of course want to be able to plan for a certain point in time does this change soon later i don’t think anytime soon i don’t think anytime soon i certainly don’t have a crystal ball but i would expect this to continue throughout the rest of the year that’s certainly

What i’m kind of telling myself uh to i think it’s always good to have you know realistic expectations so you know we heard that there’s a good possibility a likelihood that interest rates will continue to go up i think that’s definitely going to happen in my opinion and i think we’re going to continue to feel this pinch throughout the year and hopefully as we see

Inflation go down which is the whole purpose of interest rates going up we will start to see a decline hopefully in 2023 so that’s what i hope okay there you have it folks thanks for this jessica that is jessica morehouse she is a personal finance podcaster and an accredited financial counselor we reached her today in toronto thank you for joining us thank you

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Bank of Canada hikes key interest rate to 1.5% By CBC News