Bank of Canada raises benchmark interest rate to 1.5%, noting trade tensions

The Bank of Canada has decided to raise its benchmark interest rate to 1.5 per cent.

Every six weeks, the bank meets to decide on what its interest rate will be, based on what it sees happening in the economy. This time, the bank has decided to raise its rate by 25 basis points — 0.25 percentage points — to 1.5 per cent. It’s the fourth time the central bank has raised its rate since last summer.

The bank’s rate, known as the overnight rate, is the interest that retail banks have to pay for short term loans, but it affects what that consumers pay to those banks for things like mortgages, lines of credit and savings accounts.

Three of the biggest Canadian banks have already moved in response, with Royal Bank of Canada hiking its prime rate to 3.7 per cent starting Thursday, up 25 points from 3.45 per cent previously. TD and BMO quickly followed suit, and the others are expected to do the same in short order.

The central bank tends to cut its rate when it wants to stimulate the economy and raise it when it wants to keep a lid on inflation. Continue reading