The Bank of Canada raised its key rate.
Glenn Friesen, chief executive of Steinbach Credit Union, said in response that they too were raising interest rates by half a percentage point. Friesen explains that the Bank of Canada does this in order to control inflation.
“Inflation hovers around 7% in Canada,” notes Friesen. “And that’s one of their roles is that by raising interest rates, it’s increased the cost of borrowing.”
Steinbach Credit Union raised its prime rate from 3.2% to 3.7%. As an example, Friesen says that if you have a $100,000 mortgage, this increase will cost you an additional $500 per year in interest, or about $42 per month.
Friesen says their savings rate rose just under 50 basis points. The reason is that on the downside, they haven’t lowered those rates at the same rate as the loans. Their starting rate increases by 35 basis points today.
Meanwhile, Friesen says it looks like there could be two more interest rate hikes of 50 basis points each in 2022. However, he notes there are a number of factors at play. Friesen says they will have to slow interest rates if suddenly the economy starts to calm down.
“But if I was a punter, I’d say maybe two more raises like the fifty basis points we just got,” Friesen suggests.
He says we are still below pre-pandemic rates when the prime rate was 3.95%.
“I think it’s a good thing that interest rates are going up,” he says. “I think it’s good for savers and I think borrowers are still paying a very low rate.”