Policy interest rate hikes: how will they impact my finances?

08 April 2022 by National Bank
Couple analyzes state finances, sitting at the kitchen table

The Bank of Canada has raised its policy interest. If you’re wondering why—and how the increase will affect your financial plans—read on for the answers.

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What is the policy interest rate? 

The policy interest rate is the fixed interest rate set by a financial institution for a country or group of countries. This determines how much it will cost to borrow money from a central bank.

In our case, the Bank of Canada is the one that is regulating, among other things, the country's economic activity. Once the Bank of Canada sets the policy interest rate, other financial institutions use it to set the interest rate on a variety of loans (personal, mortgages, etc.) offered to clients.

The current increase is an attempt to counteract inflation, which is rising in Canada and the United States.

How does an increase in the policy interest rate affect my finances? 

Most people will be affected by a policy interest rate increase. This means that they’ll pay more interest on their loans. Households and businesses are more likely to reduce their expenses when this happens. Demand for goods and services is expected to decline and their prices may stabilize in the future:

Policy interest rate hike: do I need to review my financial plans?

If there’s a policy interest rate hike, take some time to think about your current projects and future plans, and make informed decisions. You might save money by postponing a major project rather than tackling it now. To understand all your options, talk with a financial advisor.

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