After the Bank of Canada increased its overnight rate this week by 25 basis points, the experts chimed in.

“Today’s rate hike is little surprise and we believe it is an appropriate step,” wrote BMO Chief Economist Douglas Porter in a response to the policy move. He wasn’t alone.

“They (the Bank of Canada) did the right thing,” commented Derek Holt, head of capital markets economics for Scotiabank—which like all of the Big Six Canadian banks had predicted the move—in a report.

“Canada’s economy has been robust, fuelled by household spending. As a result, a significant amount of economic slack has been absorbed,” the Scotiabank report continues.

In 2015, the Bank of Canada twice cut the overnight rate, which has an influence on mortgage rates, to counter the impact lower oil prices were having on an economy largely dependent on natural resources. For seven years, the central bank has maintained the rate at a historically low level of 0.5 per cent.

However, ahead of the announcement Wednesday, Bank of Canada Governor Stephen Poloz had said those cuts had “done their job” as the economy transitioned from reliance on the oil industry. This, combined with an improved labour market, led observers to predict a hike.

With Canadian household debt ballooning, some experts have expressed concerns about higher interest rates and their impact on borrowers’ ability to make mortgage payments.

But Lauren Haw, CEO of brokerage and website Zoocasa, thinks otherwise. “The increased benchmark interest rate of 0.25 per cent should not have an adverse effect on the housing market, as we are still in a very inexpensive lending period,” she notes.

“Mortgage rates remain at historical lows since the decrease seen after the 2008-2009 recession and it will take a series of increased rate hikes before we see a significant impact on homebuyers in Canada,” she adds.

 

Photo credit:  Chris Tyler