As predicted, the Bank of Canada interest rate for October 2018 has gone up again — this time to 1.75%.
Many economists saw this coming, particularly after the North American Free Trade Agreement (NAFTA) deal resolved.
In fact, the new US-Mexico-Canada Agreement (USMCA) was one of the reasons the Bank of Canada (BOC) gave for the October 24, 2018 hike.
Other reasons included:
- A robust U.S. economy.
- A growing Canadian economy.
- Positive projections for business investments and exports.
- A stabilizing inflation rate (it’s expected to stay at 2% through to the end of 2020).
- A stabilizing housing market.
- Decreased household spending and reliance on credit.
Regarding the last two, the BOC elaborated on Canadian household debt, saying that:
“Household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Households are adjusting their spending as expected in response to higher interest rates and housing market policies. In this context, household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.”
In other words, Canadian income is growing, so households can adjust to higher interest rates.
As well, many Canadians have already been changing their spending due to higher rates and new mortgage rules, like the stress test that came into effect on Jan. 1, 2018.
Although this is a positive, the BOC also acknowledges that household vulnerabilities “remain elevated.”
While Canadians have appeared to decrease their spending in accordance with higher interest rates, it is possible that this will reach a breaking point.
Even though the latest increase is only a 0.25% hike from the last raise in July of 2018 (when the rate rose to 1.5%), interest rates have gone up five times since July of 2017 — from 0.5% to 1.75%.
Overall, that is an increase of 1.25%. That may be a relatively small amount on its own, but applied to all bills and household debts, it could add up.
Plus, the BOC hinted that more increases are on the horizon for 2019 (and possibly sooner as there is still another rate announcement scheduled for 2018). Even if households have managed to pare back so far, it may be becoming increasingly difficult. Not to mention, that it may now be harder to plan for long-term goals that you or your family have, such as a wedding, vacation, home renovation, education, etc.
The other side of the coin is access to credit products. Many Canadians may be finding it difficult to qualify for credit products, such as home equity lines of credit (HELOCs), or even to secure mortgage refinancing.
High household debt can not only affect your bank account, but also your credit score and your ability to qualify for a loan.
The next BOC announcement is scheduled for December 5, 2018.
Don’t wait to get a handle on your household spending. We can help.
At Fuller Landau Debt Solutions, we take a personal approach to personal debt. We will examine your financial picture holistically to help you out of a financial tight spot, plan for long-term growth, cope with interest rate increases, and more.
Contact us today for a confidential, no obligation consultation. Call (647) 952-6081 or visit www.fullerdebt.com.