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Bank of Canada Announces Target Overnight Lending Rate Increase of 0.25%

This morning at 9:00 a.m. EST, the Bank of Canada announced it would be increasing it’s target overnight lending rate by 0.25% to 0.75%. Forecasters expect the rates to continue to increase going forward reaching somewhere between

“0.75% and 1.5% by December 2010 and between 1.5% and 3.5% by the end of 2011.” [1]

Changes to the target overnight lending rate directly influence the prime lending rate and therefore variable mortgage rates. Today`s announcement will likely take the prime lending rate from 2.50% to 2.75% by tomorrow. When the prime lending rate starts to increase many people are pushed towards fixed mortgage rates which offer a constant interest rate over the term of the mortgage. This is true for homeowners who are currently deciding between a variable and fixed mortgage, but also for homeowners in variable rate mortgages who have the option to convert to a fixed rate.

Accompanying the interest rate increase was a statement by the Bank of Canada : In summary, “The decision leaves considerable monetary stimulus in place, consistent with achieving the 2% inflation target”.[2]

The Bank of Canada will make its next scheduled interest rate announcement on September 8th, 2010.

[1] http://www.businessweek.com/news/2010-07-20/carney-may-raise-canada-lending-rate-signal-slower-tightening.html

[2] http://www.bankofcanada.ca/en/fixed-dates/2010/rate_200710.html

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