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A pedestrian walks past the Bank of Canada in Ottawa, Canada Tuesday June 1, 2010. (Adrian Wyld / THE CANADIAN PRESS)

Bank of Canada raises interest rate to 0.5 per cent

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CTV News Video

CTV National News: Richard Madan on the rate
Canada has become the world's first developed nation since the start of the global recession to raise borrowing costs. The Bank of Canada bumped its key interest rate up to 0.5 per cent on Tuesday, marking its first rise in three years.
CTV National News: Patricia Croft, RBC Global
An economist with RBC Global Asset Management says the Bank of Canada has to be worried about inflation in the future, but will likely continue to raise interest rates in a measured fashion.
CTV British Columbia: Shannon Paterson reports
The days of record low interest rates in Canada appear to be coming to an end. The Bank of Canada announced Tuesday its first interest rate increase in three years, raising its key lending rate 25 percentage points.
CTV Calgary: Reg Hampton on the rise increase
The Bank of Canada raised its key overnight lending rate to 0.5 per cent, a move that has narrowed the window of opportunity for Canadians to get a mortgage.
CTV News Channel: Ian Nakamoto, stock broker
The hike will have more of a psychological impact rather than a financial impact on Canadians. With strong employment growth there was a sense that if interest rates were left too low an inflation problem would crop up over the next few years.
CTV News Channel: BNN's Michael Hainsworth
The bank has raised its key rate for the first time in nearly three years which was expected but what has caught consumers off guard was the cautious tone from the Bank of Canada.
CTV News Channel: BNN's Andrew Bell explains
A business correspondent explains how the Bank of Canada's first interest rate increase in three years is impacting the Canadian dollar.
CTV News Channel: Craig Alexander, TD Bank
The chief economist of the TD Bank Financial Group says the rate hike is no surprise, as economic growth in Canada remains solid and many of the jobs lost during the recession have been regained.
CTV News Channel: BNN's Michael Kane explains
The Bank of Canada has raised the key interest rate by 0.25 per cent to 0.5 per cent, as the uneven global economic recovery continues and uncertainty in Europe is still a concern.
CTV National News: Scott Laurie on the growth
While much of the world economy is struggling to recover, Canada appears to be roaring out of the recession. The gross domestic product has grown by 6.1 per cent in the first quarter of this year, making it the greatest single gain for the economy in more than a decade.

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A pedestrian walks past the Bank of Canada in Ottawa, Canada Tuesday June 1, 2010. (Adrian Wyld / THE CANADIAN PRESS)

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A pedestrian walks past the Bank of Canada in Ottawa, Canada Tuesday June 1, 2010. (Adrian Wyld / THE CANADIAN PRESS)

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Date: Tue. Jun. 1 2010 9:07 PM ET

The days of record low interest rates in Canada appear to be coming to an end, as the Bank of Canada announced Tuesday its first interest rate increase in three years.

The central bank hiked its overnight lending rate from 0.25 per cent to 0.5 per cent, an increase that was quickly matched by major banks.

BNN's Michael Kane told CTV's Canada AM that GDP numbers released Monday were likely "the final nail in the coffin for record low interest rates."

Those figures showed the country's gross domestic product expanded by a whopping annual rate of 6.1 per cent in the first three months of this year -- the largest quarterly increase in more than a decade.

Indeed, the statement from the Bank of Canada suggested those results figured prominently in its decision.

"Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed," the statement read.

"...In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market."

The bank's optimism was tempered by worries about "spillover" from the European debt crisis -- which, it noted, has so far been limited -- and said there remains "considerable uncertainty" about an "increasingly uneven" global recovery.

Patricia Croft, chief economist for RBC Global Asset Management, said the bank's caution about overseas economies means a further rate hike in July is far from certain.

"The Bank of Canada did not focus on the strength in the Canadian economy, but rather focused on the uncertainty in the world economy, what's happening in Europe with the debt crisis that just won't go away, problems in China … the U.S. still struggling in some ways in their own recovery," Croft told CTV News Channel Tuesday afternoon. "So I think that's a surprise for me just how cautious the bank was."

The Bank of Canada's rate hike is the first among the Group of Seven wealthy nations since the global recession began two years ago.

Prime lending rates, which banks extend to their best customers, quickly followed the Bank of Canada increase.

The TD Bank was the first to announce a quarter-point hike in its prime lending rate to 2.5 per cent, effective Wednesday. The Royal has followed suit and all the other major banks are expected to announce the same increase to their primes, which influence variable rate mortgages and lines of credit.

Short-term, variable mortgage rates will also likely rise, but longer-term fixed mortgage rates -- which are more influenced by the bond market -- are expected to remain unchanged for now.

During Question Period in the House of Commons Tuesday, Liberal Leader Michael Ignatieff said the rate hike has come too soon for Canadians.

"These interest rates will make it harder for Canadians to spend on child care, on training and on learning," Ignatieff said. "Instead of helping these Canadian families, we've got a government that doesn't know how to manage public money."

Prime Minister Stephen Harper defended the move.

"When it comes to economic management, this government has the best growth rate in the developed world because of the policies of this government," Harper told the House.

The rate hikes may not stop here. Many expect further tightening, with some predicting the overnight lending rate could rise as high as 1.5 per cent by the end of the year. The central bank tried to keep such expectations in check in its statement.

"Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," it said.

Comments are now closed for this story

Mike
said

Too many hands in my pocket !!!!


IceinEdmonton
said

To all those people saying that interest rates were 20% when you purchased a house need to think a little more about what they actually paid for that house. Just 10 years ago, you could buy a 1800 sq 2 story in edmonton for around 150k... now that same home today would be almost 400k... The root cause of fear with most people and rates increasing is NOT in the fact they bought a home above their means, its because that home COSTS to much when they bought it. Are you saying a person should by a small 1000 sq ft home ( which still costs 200k btw ) for their family when it does not meet their needs because thats what the market demands? The whole problem stems from the fact that house pricing is out of control and continues to be out of control due to greed from builders, and real estate companies. At the end of the day no house is worth what they are sold for.


Gerry
said

Nice that we do not have a socialist goverment like the E,U. or the U.S.A.

matt - kitchener
said

Im a young university graduate carrying a mortgage and student loans... I am scared by the hysteria here. .5% is still incredibly low and people need to learn to live a little bit more within their means. From the majority of people commenting, you would think the apocolypse was upon us.

island girl
said

To Big DS: If you'd read the majority of the posters they would agree with me. A .5% interest rate is NOT gloom and doom and those first time home buyers who rely on a lower interest rate are looking at homes they can't afford. As sooo many posters have stated, live within your means and a .5% interest rate is a healthy one.


Life!!!
said

This will bring out all the people who bought over their means.


eddytoronto
said

Get Ready for Inflation and Higher Interest Rates ..Here we stand more than a year into a grave economic crisis with a projected budget deficit. This projected deficit is the culmination of a year when the government, at taxpayers expense, acquired enormous stakes in the banking, auto, insurance and mortgage industries. The ensuing economic downturn, the unfunded liabilities of federal programs such as Social Security, civil-service and military , prison pensions, welfare and healthcare. Such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises. This is a Coming Summer Of Discontent. The summer of 2010 promises to be the most tumultuous summer here in Canada and the U.S.A and especially in the short history of the European Union. The sovereign debt crisis sweeping the continent threatens to cause economic and political instability on a scale not seen for decades. The public is not going to understand the economics behind what is happening. All most of them are going to know is that the budget reductions, tax increases and pay cuts really, really hurt and that is likely to result in a whole lot of anger.


RD
said

.25 increase translates to 15 -18 $ more a month on your variable rate mortgage payment. Banks might move their prime by .25 not .50 like some people are saying. Actually, banks should not touch their prime, they refused to pass the rate cut last time the BOC cut the rates. So now they are even again!!


Mommy of Four
said

OverWorked: Sorry, you'll have to look at least an hour outside of the GTA for that somewhat more affordable larger home. That's what we did, although now we use more gas for the longer commute. Sometimes it's a worthwhile trade off.


Qualbe Chowdhury
said

I hope, the USA's financial disaster will not repeat in Canada in coming days!!!!!!!! Considering very weak job market, high inflation and huge so called tax burden of middle class Canadian, skyrocket high commodity price of our day to day life will make very difficult to maintain a minimum cost of living. Because in reality people are still loosing their job very extensively everyday, employers are expanding the job responsibilities on their existing employees by eliminating new job opportunities. So by seeing all these situation, BOC has decided to raise the interest rate while MONEY COW banks are already making billions of profit every year!!!!!!! So WHAT KIND OF FAIR SITUATION IS CANADA MAKING FOR THE ORDINERY CANADIAN PEOPLE IN TERMS OF FINACIAL STABILITY!!!!!!!!!!


Sue
said

Sorry if I don't jump on the "woe is me" bandwagon, but when I bought my first house in 1982, interest was 21%!! I thought I was getting a great deal because the builder gave it to me for 16%. So for me any interest rates below 10% are a bonus. If people can't afford a half percent rise in interest rates for their mortgage, perhaps they were too far in over their heads to begin with. Interest rates today are as low as they were in the 1950's. Can we say that about the price of any other goods today?


30 something in Calgary
said

What ever happened to people buying within their means? People in the last couple decades have become so materialistic, wanting everything instantly, rather than saving up and buying what they can afford. It's no wonder the teenagers are a bunch of spoiled brats--they only have their parents to look to for role models! Maybe they should raise the interest rates higher so people would actually be accountable for their own financial security. Our mortgage rate was 6.25 and we went without frivolous new vehicles ect. for many years so we could pay our house off. Still drive a peice of crap-- but its paid for!! Credit cards should only be used in emergency situations.. New flat screan TVs are not an emergency! Glad I listened to my Gramps all those years ago.. if you can't afford it, it is not necessary! Time for people to take responsibility for themselves..


Doug # BC
said

The panic mode I see some people going into over this is laughable.I think,more than anything else,it is proof that to many people are living far beyoned their means.The CAN afford thos expensive cars and big screen TV seta that they bought on their credit cards,but they cannot afford to pay people from whom they borrow money,a reasonable rate of return.If a tiny rise in interest rates,from historical lows,is about to ruin your family budget,the truth is,your family bidget is a joke.It's you who have been foolish. Higher interest rates will not raise the pfofits of banks.They charege more for the money you borrow from them,but they also have to pay more to the persons they borrowed that money from.If rates rise,borrowers pay more,but savers earn more.All in all,a good incentive to be the latter, and not the former.And,since personal debt by Canadians is a big drag on our economy,this is the right way to go.Encourage success,and stop rewarding failure. As to rising prices,it will be higher rates that slow those price increases.By protecting the value of the dollar,we get more goods for every dollar spent.Low rates look good.But if we have a return to the 63 cent "Chretien Buck",we then have to pay more than $1.53 for $1.00 worth of goods.Hardly a bargain. To the student loan concerns,I am curious as to how you used the very expensive,and highly subsidized education you got.Frankly,if you studied hard,and chose your subjects wisely, you should now be educated enough to do very well i any economy.If you spent your time and money studying ancient philosophies or some nebulous ideologies with no practical value,I suggest you suck it up and deal with it.School was obvioulsy a hobby for you,and a waste of tax dollars for tax payers.


BigDS
said

To ISLAND GIRL: you sound like one of these who have everything already, with goobs of money in the bank that is makling very little intrest. The was a fact published a couple of years ago that every .5% the prime goes up, 100,000 less people can buy thier first home! (I hope this number is acurate to that report) This is 100,000 people stuck in apartments or rentals of som other type. As intrest goes up there will be less new home built, and IF you are from where I think you are, residence's of Vancouver Island don't like to share and any move to stop development is met with glee and open arms! This will affect the dollar people. Hopfully the dollar will go up and hurt the manufactures in the EAST SO THEY PUT the PESURE ON TO STOP THIS! I feel for the hard workers that will nowe not be able to buy a home, and shame on those who think that is a great thing! Go put your millions in stocks and bonds!


RJ in Vancouver
said

I'm with OverWorked! I people didn't over-extended themselves on everything from car loans to mortgages unsupported by their earnings, they would not worry about such small increase in interest rates. For all of us who lived according to their means and are actually debt-free, even with savings, this and the upcoming rate increases are welcomed. You can't live all your lives on borrowed money - at some point the house of cards will collapse.


Victor
said

A small interest hike is necessary. Unfortunately quite a few people out there have planned their budget down to the penny under the current interest rate and perhaps will even experience bankruptcy.


Mommy of Four
said

Sorry Overworked, I didn't say I lived in the GTA. Couldn't afford to with 4 kids!! Try an hour outside in any direction and you'll find that big home you're looking for. We spend our money on gas for that long commute instead. ;)


OverWorked
said

Mommy of Four: Please tell me where you can buy a 2500sf house for $400,000 in/around Toronto.
As for the interest rates - I hope people HAVE over-extended themselves so that once their houses are in foreclosure, I'll have a chance to buy the home, in the area I'd like to without the currently insane prices!


Ralph
said

Interest rates didn't rise a little,they doubled.


Raj
said

0.5 is still very very low.We knew they had to do it, we dont need inflation when we are in recovery


Vanc Guy
said

Why can't they just leave it alone for ten years. The banks make enough money. We need some confidence not threats of increases that kill growth.


JIm in Ottawa
said

Start paying off your obscene debts people.


Harry
said

I can see it now! The banks will raise their prime by a minimum of .5, maybe .75 and if they think they can get away with it by a full point. After all, Scotiabank just announced a measley 1.1B profit for the latest quarter. These banks and their profits are immoral and should not be tolerated! Its a rip off!


island girl
said

To BigDSInterest rates on loans in the early 80's were as high as 20%. (I know several doctors facing these rates as they started up practice). This modest increase is far from that. You can't have free money and people need to understand that. Higher interest rates encourage investment while making people think twice about borrowing. These minimal rates will not encourage any wild speculative behaviour, but discourage it. Wise move.


Sher
said

Negativity...hmmm unbelieveable....I look at what we have come thru in the last 3 yrs and am very proud that Canada has withstood the volitility by making good decisions...better than any other country in this world....I have faith that we are still on the path to positive growth in Canada. Quit bank bashing and look onward...3 yrs ago bank prime rate was 6.25%....we have had a break the last 3 yrs and all of you have benefited!!!!!


MARG MM
said

Unless you were living on another planet, you had to know this was coming. The historically low interest rates were only a temporary measure to help us out of the global recession. And it looks like it worked, as Canada is well on the way to recovery. Just as they went down during that time, they will now have to creep up. Those that "didn't get it" and started a spending spree based on the low rates, will now have to buckle up and figure out a way to pay off their debt at a higher rate.Did you really believe that interest rates would stay low forever???


Robin
said

"Heads up, the fat lady started singing in 2000, she's been belting out the songs ever since!" Wake up Canada... wake up world! It's time for the people to end the brotherhood of the fat balding white man's reign! (they are few) You make it way to easy for them to divide and squash us. "Power to the people", their supposed to be working for us, remember? Instead they line their own pockets, educate their own children to follow in their footsteps. (clones) Oh, not to worry, my vacation times coming. When I'm dead! Time for the government to start wasting some of that money on us, our kids! Jig's up, I'm so sick and tired of their mind control, oppression, slave labor, imprisionment, false information, back room deals, top secret blackout messes, they never clean up! Banks giving new meaning to the word profit. If anyone needs protection it would be us from them. They're just the same old pile with a different face with a spot of color thrown in to make us feel like we're getting somewhere, Not! Take a gander south of the border folks, "big bussiness is taking out insurance policies on their employees, die on us will ya, no problem, it's pay day, (for us) boo hoo, we just lost another peasant. Won't be long before it's here, if not already. You know how they like to share. Set them up, knock'em down! Oh crap, you'll likely not see this, (if the word police are doing their job), but I got tell ya I feel better.


MKR
said

i think one of the posters here had it right, what happened to the age when people started off small???? i mean cmon why does a young couple need to buy a huge house that they dont plan on filling with family for years???? instead buy a small starter 2 bedroom and gradually work your way up. my in-laws bought a mobile home as their first house and slowly worked their way up the real estate ladder, 30 years later they were able to buy their retirement home with cash...... pretty smart move if you ask me... a move i plan on emulating as much as i can


Anthony
said

Look at this hike from a perspective... back in 1980's the interest rate that banks charged were about 21 %-22%, plus minus. Today's rate is still a bargain. It is like shopping at Honest Eds... :-)


starjumper
said

Nick G said: "...but this world is not about what you want, its about what you need, and you do not need that fancy boat, motorcycle, 2nd house, etc..."

... an education, text books, a roof over your head, food...

i don't know about you, but neither myself nor anyone i know has a boat, a motorcycle (except as primary transport, no car), or a second house. but we do have student loans, car loans, primary mortgages... some of them are even trying to *gasp* start a family!


BigDS
said

It's New homes and comercial construction. Don't need to wife is a BCom. We have seen this before, this is but the start. THE START! Anyone remember Alberta in the 80's? What is intrest, eh no one needs to work! And by the way I am not refering to those who went out and baought all the toys. It's all in the basic quailfying of the mortgage in the first place. Intrest goes up, less buy new homes, We sell less. But then again I guess you can buy your home package from an appliance sales place. Good Luck!


Steph
said

I can always count on Wendy s comment for a good laugh. If lack of common sense were to be rewarded you would be a champion.Have a nice ride on your cloud WendySteph


island girl
said

To BigDS: Your business must be walking a very slim line if a .5% interest rate causes you to lay off people. And if people lose their homes with such modest rate hikes they already have too much debt. It's these businesses and individuals that need weeding out. Their over-extension caused the last recession. The bank increases are the right thing. Economics 101, try taking it.


Lz in Edmonton
said

Looking at all the armchair posters here I only laugh at you. If you think "extreme" low interest rates are a good thing for longer than necessary, please move to Greece and enjoy the beaches. The bank of Canada needs to normalize the rates so that when people spend money, they consider the consequences of that spending. As it stands, when it was close to zero, there is no consequence to spending money that you don't have, because in essence, it was very very cheap or free. Pay down your debts and live within your means. Contrary to popular believe, higher interest rates mean that the economy is doing better than you realize. Lastly, for those that think BANKS make profits from these increases, the reverse is actually true. Rising interest rates are a drag on profits as mortgage and loans that are locked in, pay less and are worth less now than they were yesterday. Deposits are also paid more in interest (pautry as it is) and that is also a a drain. Less people take on mortgages and loans at the higher rates which again is a drain. Please please, take an economics course.


Jim-Surrey
said

Don't the damn banks make enough money already and give out outrageous salaries and bonuses.This is pretty dumb Carney, where is your head at, it is time for us peons to be given a break from increases and taxes.Suppose to be looking after us not gouging us MORE!You related to Gordon Campbell??????


2honest 2brich
said

BigDS economics 102 when the people are doing well and they do not want to borrow, get the feds to borrow for them and increase the interest; then tell them "it's the economy, stupid".


Mommy of Four
said

People wouldn't be in such a panic if they hadn't bit off more than they could chew in the first place. What happened to young couples buying starter homes and aspiring to reach their dream home after years of hard work and saving? Low interest rates and minimal down payments have fooled people into thinking they can afford that 2500 square foot, $400,000 home right out of college!! I sincerely hope they all planned ahead for the inevitable interest hikes.


Paul
said

People, relax...prime is still only .50% Why does everyone freak out with the VERY slightest movement in interest rates? Would you like inflation to add to the prices that we pay for EVERYTHING...remember there are MANY things to consider, it's a balance and not just people paying less for their mortgages. I feel pity for the people that refinanced and took all their equity from their properties and just wasted it on frivolous items that they really don't need. I work for a mortgage company and far too many people are refinancing for no good reason...RATES are on the way up...please realize it and adjust acordingly!


2honest 2brich
said

Considering that this growth is at the expense of borrowed money, the banks get a double bonus. No wonder they are so profitable!! The fact that the fringes of society are skirted off, that is inconsequential! I say: pay back the money borrowed from the BOC from profits and before bonuses


BigDS
said

Economics 101: Supply and demand. Demand drops when the the jobless rate goes up. Thus the "first nail in the coffin of jobs and prosperity". Companies will have to pay more in intrest thus will try to cut backon expenses thus make the workers do more with less. Expect the unemployment rate to begin to climb. We have seen this all before!Bankers are not much different than thieves! And think of this: With this increase in rates that means there are a bunch of people no longer able to buy a home thus my clients don't buy from me, we layoff, thus increase the unemployment rate! GET THE PIC NOW! Yesh!


Chris, SJ
said

KJ - for the record, a .25% (25 bps) increase in prime lending rate is not an extra $0.25 on every dollar. A $0.25 increase would be a 25% increase in prime rate; in dollar terms this is written as $0.0025 per dollar.Cheap money causes asset bubbles, good on the BoC for making the right move. Inflation could be a killer, as we rely on a modest currency value internationally for our exports and resources, which are largely pegged against the greenback.


Wendy
said

This is great news, I welcome it with open arms!


island girl
said

I don't agree with BigDS. I think the growing economy will give businesses the confidence to hire people. Higher interest rates should keep inflation in check. Inflation does NOT mean automatic raises in pay. THOSE days are well over. What inflation means is you pay more and get less as those of you old enough to remember the 1970's recall. And unions were big in those days so you had more of a chance your pay was indexed to inflation. Those days are gone. Increasing interest rates is the right thing to do. Encourages investment and keeps people away from debt. Economics 101.


Nick G
said

I think "DEBT WILL KILL CANADA" missed the point here... LOC and variable mortgages are not toast, they will simply have a higher rate of interest. That should be food for thought for anyone getting into these arrangements in the future... Spending more than you make is what everyone wants...but this world is not about what you want, its about what you need, and you do not need that fancy boat, motorcycle, 2nd house, etc...


Dean in Abby
said

I am not a socialist by any stretch, but I don't understand why the banks have so many fees etc and worry why they don't make more than a billion in profits per quarter. It seems they quit lending to people and businesses but still managed to make these rather large profits. I do not begrudge profits in the slightest but if you are not lending and can still make this kind of money, why, when you do lend, don't you lower credit card rates and the ridiculous banks fees? Why does it cost, for example, $15 to certify a cheque? That's crazy! I am sure there are more ridiculous fees that I don't incur but this kind of gouging is not very fair to us all.


DEBT WILL KILL CANADA
said

Variable rates mtg are toast.LOC with prime are toast...Major banks will raise their rates by 0.5% this week...Pay your debts as the days of borrowing cheap money is over. The party is over. Your pile of debt just got bigger; rates will go up constantly for the next 3-5 years.Bankruptcies will be up.The fat lady started singing...


Mead
said

REMEMBER - when inflation rises - most people get a pay raise. When interest rises, and your mortgage goes up - you get no pay raise.


BigDS
said

This will also put the first naiul in the coffin to jobs and prosperity. All Hail the Bank of Canada! NOT!!!!!!!!!!!!!!


KJ in Kingston Ontario
said

Count on the banks to get away out in front of this with increases that are far in excess of 0.25 per cent that the BOC is instituting, however that being said: "cheap money" was the real cause of the last recession and has fuelled a pending debt crisis that may well make the Great Depression look like a slight down-turn. People (and countries) can't owe twenty-five cents more than every dollar they make and keep on doing business as usual forever.


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