In the wake of the latest interest rate increase, Canada’s big commercial banks have each raised their prime lending rates by 50 basis points to 6.45%.
Royal Bank of Canada (RY), Bank of Montreal (BMO), CIBC (CM), Bank of Nova Scotia (BNS) and TD Canada Trust (TD) wasted no time in lifting their prime interest rates by half a percentage point immediately after the Bank of Canada hiked its benchmark overnight interest rate to 4.25% from 3.75%.
The higher interest rates charged by the commercial banks are likely to impact variable rate mortgages, lines of credit, and other debt instruments Canadian individuals and businesses rely on, making it more difficult to qualify for loans and more expensive to service debt.
Higher rates have already led to a dramatic slowdown in Canada’s housing sector as many would be home buyers have now been forced out of the market.
At the same time, data shows that Canadians are relying on credit cards and lines of credits more to cope with inflation that is at a 30-year high of 6.9% and pushing up the price of consumer products ranging from groceries to gasoline.
The Bank of Canada did indicate in its latest interest rate decision that it may now be willing to pause its monetary policy tightening cycle to evaluate the impact of higher interest rates on the economy.
