It has finally happened. After seven years of hints, hopes, cajoling, warnings – even threats – the Bank of Canada has raised its overnight interest rate.
The trendsetting rate climbed a quarter-point and now sits at 0.75%.
Many market watchers believe this is the beginning of a long-term trend and the central bank will continue with slow, incremental increases as long as the economy continues to show healthy growth.
The next date for a rate setting is September 6th but most observers do not expect any change until the October setting. Right now the odds are in favour of another increase, likely another 25 basis-points. While that amounts to a doubling of the BoC rate in just four months, it still falls short of a full 1.0% increase that the big bank economists see as the threshold for a change in consumer borrowing habits, including mortgages.
It is far more likely that impending changes in mortgage rules being considered by the federal banking regulator, the Office of the Supervisor of Financial Institutions, will have a much sharper impact on mortgages in the near term. OSFI wants to tighten up requirements for uninsured mortgages, with a more onerous stress test for buyers, among other measures.
The regulator is proposing a qualifying rate of the contract rate plus 2.0%. Nearly half of all mortgages in Canada are now uninsured and financial institutions governed by OSFI hold about a third of that total. By one estimate that could see the growth of mortgage originations trimmed by 1.0%, to about 4.5%.