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Interest Rate Increase Will Hurt Many Canadians

Interest Rate Increase Will Hurt Many Canadians

July 27, 2022

Interest rate hikes will be painful for many Canadians, writes Peter Watson.

The Bank of Canada made an aggressive move to increase interest rates.

That increase will impact many individuals.

The underlying story is just how serious the risk of inflation is to the Canadian economy and that such extreme measures have been taken.

Three facts help paint the picture of the severity of current inflationary concerns.

One. The one percent increase to interest rates was four times the size of recent interest rate hikes.

Two. The current policy interest rate as set by the Bank of Canada is 2.5 percent which is the highest since the financial crisis of 2008.

Three. Canada ‘s inflation rate is 7.7% which is the highest since 1983.

Interest rate hikes are a delicate balancing act by the Bank of Canada with plenty of pros and cons on the impact they will have. Consider this a financial trade off.

Financial pain will be felt by many individuals from both higher borrowing costs and likely continued decreases in the value of people’s largest assets, their homes.

As for the Canadian economy, this increase in interest rates and the expected future interest rate increases could push our economy into a recession.

The priority is to get inflation under control, which will slow price increases and wage hike demands. Consider this the necessary steps to maintain a strong economic foundation.

Short term pain for long-term gain. This ultimately will be good for our economy however many will be hurt in the process.

Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com