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Wednesday, May 24, 2006

Mortgage Rate Increase on its Way

If you are considering buying a home in the coming months, do yourself a favour and call a mortgage broker first thing in the morning tomorrow and reserve a rate. It won't cost you anything, in fact, it will save you thousands if you do decide to buy a home. They should give you a rate guarantee for 90-120 days, giving you time to get some real estate at today's price (well, at today's mortgage rate anyway....). The bank of Canada increased interest rates today and that means a mortgage rate hike should come tomorrow....

Bank of Canada boosts interest rates
Last Updated Wed, 24 May 2006 19:50:33 EDT
CBC News

The Bank of Canada raised a key interest rate once again by one-quarter of a percentage point to 4.25 per cent, but signalled that its recent string of rate hikes may be at an end.

* INDEPTH: Interest Rates - the rising cost of money

The increase to the overnight rate — what major banks charge each other for overnight loans — is the seventh increase since last fall, when the Bank of Canada started edging rates up gently to slow down a red-hot economy and keep inflation in check.

In a commentary accompanying Wednesday's rate decision, the Bank of Canada dropped any suggestion that modest further rate hikes may be necessary to keep the economy rolling and inflation in check — a phrase that had been common in previous announcements.

Instead, the bank said the overnight rate is now at a level that is expected to keep the Canadian economy healthy and to return inflation to the bank's two per cent target.

The country's major banks responded by boosting their prime rate, which is what they charge top customers.

In the wake of Wednesday's increase, consumers should expect to see higher interest rates for such things as lines of credit and variable rate mortgages.

The latest increase in interest rates comes as Canada enjoys solid economic growth, low unemployment and relatively benign price inflation.

The core inflation rate — which excludes eight volatile components identified by the Bank of Canada — surprisingly slipped to 1.6 per cent in April from 1.7 per cent in March. Many economists had expected the core rate to rise to 1.8 per cent.

Canada's jobless rate increased slightly to 6.4 per cent in April as job growth slowed, Statistics Canada said earlier this month. The rate rose a tenth of a percentage point from March, but still remained near 30-year lows. Additionally, the economy grew by 3.3 per cent between February 2006 and the same month last year.

Economists see rates hikes at an end

"In our opinion, there is a good chance that we have seen the last tightening in the current cycle," said TD Bank deputy chief economist Craig Alexander.

"There are clear signs that housing markets in the U.S. are cooling, which will erode the housing-wealth effects that have been a powerful catalyst to American consumer spending in recent years," he said.

BMO Nesbitt Burns senior economist Michael Gregory said the Bank of Canada appears to have “officially” paused but still probably retains a bias to tighten.

"The data, inevitably, will determine the length of pause and the post-pause policy direction," he said.

The Canadian dollar closed up 0.14 of cent on Wednesday at 89.31 cents US.

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