The Bank of Canada announced its key interest rate will rise to 4.75 percent, the first increase since January.
Investment Advisor with Smart Investing Solutions Brian Golly says this morning’s decision doesn’t surprise him, because some believed it was coming next month.
“The interesting thing is going to be in July, we’ll see what the numbers look like as they come out through the rest of June, but if inflation is still ticking higher and the economy is still ticking along, then I wouldn’t be surprised to see another 25 basis points jump in July.” said Golly.
“It’s kind of a catch-22…higher interest rates aren’t going to bring food prices down at the grocery store, they’re not going to bring gas prices down at the gas pumps.
“The banks basically want to get that inflation rate down to two percent and the only tool they have is to play around with interest rates.” he continued.
From an agricultural point of view, Golly says the increased interest rate would provide some benefit for farmers if they’re borrowing money to buy supplies or machinery and use that interest cost as a tax deductible expense.
“Obviously we don’t like making those payments…if those interest rates are locked in then it’s not going to be much of an issue (but) if the interest rate is variable based on the Bank of Canada rate, then those costs are going to be going up.”
The next interest rate decision is scheduled for July 12th.