You can tell it had been awhile since the Bank of Canada had jacked up its key interest rate with all the breathless anticipation leading up to Wednesday’s announcement that the key overnight rate was being set at 0.75 per cent.
That’s a figure that would be sniffed at back in 1981 when mortgage rates were over 20 per cent and stayed in the double digits until well into the ‘90s.
Still, anybody with variable rates on their mortgage, line of credit, credit card or car loan will immediately start to feel the pinch after Wednesday’s announcement and it will cost more for homebuyers or those who need to renew their fixed rate mortgage.
Canadians have been living large on cheap money since the Bank of Canada last announced an interest rate hike seven years ago, encouraging Canadians to get into the housing market and ring up record household debt.
Wednesday’s announcement may not be enough to cause you to hold off on making a necessary purchase for your golf operation or business, but the question now is how much more is coming and how quickly?
It will depend on what happens in the economy of course, but many economists expect at least one more rate hike before the end of the year and more in 2018 to where the central bank’s key rate is up to 1.5 per cent.
Where it goes after that remains to be seen, but it’s clear that businesses and individuals could quickly be reconsidering spending plans in the near future, depending on what happens.
The interest rate may not get into double digits as it once did, but the Bank of Canada will need to be careful with the record household debt, believed to be $1.67 for every dollar of disposable income, and mortgages, which account for about 66 per cent of household debt.
It’s long been said that rising interest rates could put a lot of businesses and individuals on the bubble and that puts stress on either side of your sales desk, especially in markets such as Toronto and Vancouver, where the price of homes has skyrocketed.
Businesses now face the prospect of not only reining in their own spending, but facing members or public golfers whose disposable income shrinks even more with each passing interest rate hike.
The interest rate itself may not be as high as it once was, but the impact could be just as powerful depending on how far the Bank of Canada takes it.