The Bank of Canada raised its benchmark interest rate by 25 basis points this morning for the second time in two months, even as households and governments in the developed world continue to cut back on spending.
This means that the charter banks will be moving the Prime Rate from 2.50 to 2.75 per cent. The central bank said any further increases “would have to be weighed carefully against domestic and global economic developments.”
The central bank became the only one in the Group of Seven to hike its key lending rate after keeping it at unprecedented lows during the recession.
While economic growth in Canada has largely relied on consumer spending, the bank now projects that business and trade will make up a larger part of the country’s gross domestic product, but overall growth won’t be as large as the bank previously thought.
The bank now estimates that Canadian GDP will expand 3.5 per cent in 2010 and 2.9 per cent in 2011, down from the previous projection of 3.7 per cent and 3.1 per cent respectively.
Given the above and Prime moving to 2.75%, it means that for every $100,000 of mortgage the average increase will be approximately $15 per month using an amortization of 35 years and from the above comment by the Bank of Canada, the expectations are that Prime may remain at 2.75% for a period of time until we have more economic stability. The next central bank review is on September 8, 2010.
Please also note that while the bank rate has increased 50 basis points over the past 2 months, discounts on variable mortgages have also been improving with the best today at Prime minus 0.70 or 2.05%. If we go back one year when prime was at 2.25%, variable mortgages were available at Prime + 0.20 which means that clients had a rate of 2.45%, therefore in real terms clients are better off today with rates at Prime minus 0.70 even though the Prime has increased. Great time to PURCHASE!