Canadian interest rates should be raised by January 2018, C.D. Howe says

By: Dominic Licorish on January 13, 2017

A week ahead of the next Bank of Canada interest rate decision, the C.D. Howe Institute has recommended that the Bank should raise its benchmark interest rate to 0.75% by January 2018.

The Institute’s Monetary Policy Council (MPC) says that in the meantime, the bank should hold the key interest rate at 0.5% until mid-year. That rate determines the prime rate, which consumer banks use to set interest on their various loans, such as lines of credit and mortgages.

As the Bank of Canada assesses the economic climate to decide the key interest rate, the MPC, which is made up of 12 of Canada’s top economists, does an independent assessment and makes policy recommendations for upcoming announcements.

In the latest report, nine of the 10 attending members agreed the bank should keep the rate at 0.5% for the next two decisions. The lone dissenter felt the rate should be cut next week to 0.25%.

Looking out further to six months, there was less unanimity. Seven members called for rates to remain at 0.5%, while three felt the rate should be hiked to 0.75% by then. A year from now, more than half the council felt rates should be hiked. Five recommended 0.75% and one recommended 1.00%.

The recommendations for higher rates reflect confidence in the economic strength of the country both globally and domestically.

It’s clear that higher interest rates are coming. This will affect everything from mortgages to personal lines of credit, meaning if you have such a loan, it’s important to sit down and understand how your payments could be changing in the next year.