Bank of CanadaSean Kilpatrick
The Bank of Canada boosted its overnight lending rate on Tuesday for the first time since 2007. The move could well spur higher borrowing costs on everything from credit card rates and mortgages to lines of credit and business loans. The bank cautioned, however, that global economic growth is uneven, and that one hike does not necessarily mean a string of increases.
Here is reaction on the move from economists, business owners and currency strategists.
ON HOUSEHOLDS:
All in all, it's healthy for our country and citizens. We are at historical lows when it comes to borrowing, and what you get for your savings. Going forward, Canadians can expect a better yield on their savings.
One of the things that concerns me most ... is seeing Canadian behaviour in terms of debt - credit card and mortgages. Having these historic low rates [gives them incentive]to borrow more, and in the long term that's not really healthy for Canadian households. People understand that, and I expect in the near future households will be thinking about debt and how to manage it and reduce it.
I expect moderate, slow and steady rate increases over the next 12 months.
Peter Aceto, president and chief executive officer of ING Direct Canada.
THE HOUSING MARKET:
I would be taking a more wait-and-see approach. Even though Canada has a strong foundation, that foundation can be compromised by what's happening globally.
Relating to our business, even as small an increase as this morning will have an effect of putting that [home]uying decision on the back burner. And we will probably see some small increase in borrowing or lending costs. As builders, we'll have to look for creative ways to keep prices as competitive as possible - being more aggressive with incentives, or taking a direct hit in the pocket book.
Paul Dietrich, Peterborough, Ont.-based owner, Parkview Homes.
THE ECONOMY:
While the bank took the "elevator down" when cleaving rates, ongoing uncertainties and an easing pace of growth point to a very careful pace of tightening. The bank may not hike at each meeting and might "pause" on increases if near-term financial conditions warrant. The emphasis on global conditions in today's communiqué is no accident and, after the rocky last couple of years, policy makers are keenly aware that Canada is not an island.
Grant Bishop, economist, Toronto-Dominion Bank.
The statement was unambiguously on the dovish side of expectations, with the bank almost bending over backward to indicate that this is not necessarily the start of a relentless campaign to crank rates higher.
While the bank has taken the first step to tighten policy, it is an incredibly tentative step.
Douglas Porter, deputy chief economist, Bank of Montreal.
THE CURRENCY.
The BoC added a cautionary note in its release stating, "given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments."
The market perceives this as a potential pause in the newly initiated rate hiking cycle for the BoC and potentially short term negative for the Canadian dollar.
John Curran, senior vice-president, CanadianForex.
"The required rebalancing of global growth has not yet materialized." This statement sums it up. The markets were expecting a more favourable tone to today's announcement. It was rather dovish for the Canadian dollar.
Rahim Madhavji, president, Knightsbridge Foreign Exchange
Tavia Grant