Interest rates inched up by Bank of Canada

Dave Flaherty/The Oshawa Express

For the first time in more than seven years, the cost of borrowing has increased for Canadians.

The Bank of Canada raised its interest rate to 0.75 per cent as of July 10, an increase of 0.25 per cent

The bank’s rate had been standing at 0.5 per cent for about two years now.

Karolina Krystyniak, an associate professor at the University of Ontario Institute of Technology’s Faculty of Business and Information Technology, says now is the right time for the increase.

“Rates have been incredibly low for years. There have been a lot of reports that the Canadian economy is doing well. It’s strong enough now to handle these rates,” Krystyniak says.

With major banks usually taking their lead from the Bank of Canada, Krystyniak noted the increase will result in some people paying higher interest rates on loans such as lines of credit or mortgages.

“It will take longer to pay off and payments will be higher. As well it may be more difficult to qualify for a loan or mortgage,” she continued.

With lower interest rates, Krystyniak says Canadians have been racking up large amounts of debt over the past few years.

“[That debt] is [on average] 167 per cent of disposable household income so it would be good to cool down the market a bit,” Krystyniak says.

Krystyniak says that while the rate increase is not substantial, Canadians should be aware of the ramifications.

“I think it’s important that people become more prudent in taking loans,” Krystyniak says.

The Bank of Canada announced its next decision on interest rates would come in September and Krystyniak wouldn’t be surprised if there was another increase in the near future.

“It’s important to keep in mind that inflation is still quite low. Prices aren’t growing and neither are wages. The Bank of Canada will be very cautious and will make their decision based on inflation,” Krystyniak says, adding that the economy’s performance will factor into the decision as well.