The Bank Rate Change Explained

Date posted: July 27, 2017
The Bank Rate Change Explained

Interest rates are going up. Why, and what you need to know if you have debt or are looking to borrow money

By Tom Sandford


Last week’s announcement by the Bank of Canada of an increase in the country’s benchmark lending rate made headlines. Here’s a Q and A to help you figure out how the increase might be important for you.

What is the Bank of Canada?

The bank is a government body that promotes the economic and financial welfare of Canada. Its main goals are to keep inflation in check, issue money and ensure we have strong financial systems.

What is the lending rate?

It is a safeguard that the Bank of Canada uses to influence interest rates to help stabilize our economy. The lending rate it sets is the one banks and other financial institutions use to borrow and lend money among themselves. They in turn use it to set the interest rates they charge to their customers.

Why did the bank raise it?

The increase – the first in seven years – moved the rate from 0.5 per cent to 0.75 per cent. The bank said that even though the economy has been growing and inflation has been low, a stronger economy can fuel inflation, making things more expensive. So, it increased the lending rate to act as a preventative measure to maintain proper balance in the economy. The bank noted things beyond Canada’s borders can change the economy here – demand for oil, for example – and those factors are important considerations, too.

What does all that mean to me?

The increase may not sound like much, but whether you’ll notice the change depends on several factors, and the answer is much more nuanced than a simple “yes” or “no.”

  • If you’ve have no debt, you have nothing to worry about in terms of the rate increase.
  • If you own a home, it may make sense to review your mortgage. If you have a fixed-rate mortgage -- mortgages locked at a specific rate for a specific term – understand when the renewal date is and what the rate change might look like.
  • If you have a variable rate mortgage – rates float and move up and down as lenders react to changing conditions, like the Bank of Canada rate – then your rate is almost certainly going up. Understand how much that increase is going to cost you, and adjust your household budget accordingly.
  • If you have other types of debt – car loans, student loans, a line of credit, credit cards – be aware of the terms and conditions of those loans. There’s a good chance the rates for most products are fixed, but lenders may be allowed to adjust rates as the market changes.

What should I do?

Experts say the increase should motivate Canadians to review their borrowing habits and take steps to manage their personal circumstances to adjust to things like the bank rate increase. With two more interest rate announcements scheduled by the Bank of Canada before the end of the year, it’s a good idea to familiarize yourself with how you could be affected, now or in the future.

If you’re like many Canadians who are living with debt, the best advice is to attack the debt more aggressively (as opposed to just paying the monthly minimum), and in so doing head off the incurrence of additional debt if there are more rate hikes over the long term.

Learning how to manage money and debt doesn’t have to be intimidating and easyfinancial can help you get started in taking better control of your financial future. You can find more information on making smart personal finance decisions by downloading “10 ways to improve your credit and make smart money decisions” at

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