The Bank of Canada’s first interest-rate hike in seven years has set in motion a complex unwinding of a near-decade-long era of easy money.
The central bank raised its overnight lending rate by a quarter-percentage-point Wednesday, to 0.75 per cent from 0.5 per cent, citing “bolstered” confidence that the Canadian economy has emerged from years of sputtering growth.
Some borrowers are already paying the price. Canada’s largest banks matched the central bank’s move by raising their prime rates effective Thursday by a quarter-percentage-point to 2.95 per cent. Prime rates influence the cost of borrowing on floating-rate loans, including variable-rate mortgages, credit lines and student loans.
Bank of Canada Governor Stephen Poloz justified the hike, saying he’s increasingly convinced that the Canadian economy has “turned the corner” after a series of false starts, including the oil price plunge in 2014 and 2015.