Just over two weeks ago, after months of speculation, the Bank of Canada raised the interest rate for the first time in seven years. Based on months of careful analysis and data collection, the waters finally seemed calm enough to make the move. Continued economic growth and a much more stable economy meant it was time. The years of enjoying a 0.5% rate are gone. Canadians can now enjoy 0.75%.
However, many are saying that it is just the first of more changes to come.
According to the Financial Post, “policymakers are forecasting economic growth of 2.8 per cent this year, followed by two per cent in 2018 and 1.6 per cent in 2019. Not bad when compared to other major industrialized nations. Household spending still accounts for much of our GDP growth, along with improving export activity and – to a lesser extent – business investment.”
This positive outlook could mean the possibility of another interest rate increase, although, as the article notes, analysts don’t expect it to come from the Bank of Canada’s next policy meeting on September 6th.
The United States Federal Reserve, on the other hand, announced last week that it would not be raising the interest rate, due in part to not yet having met the goal of stabilizing inflation. However, as the CBC stated, the Fed has also suggested that, with stabilization, a hike is imminent.
So far, positive gains have been made for the Canadian dollar, which has struggled significantly over the last few years. Just last week it hit 80 cents U.S., a level it hasn’t closed at in more than two years. Although it did start climbing back in June, many state that the jump is a direct result of the Bank of Canada’s decision to raise the interest rate, the Toronto Star argued.
While none can actually claim to be surprised by the announcement – after all, we’ve been warned it was coming for months now – as far as cause and effect, we’ll just have to wait and see.