The Bank of Canada has raised its key interest rate.
Glenn Friesen, Chief Executive Officer for Steinbach Credit Union, says in response, they too are raising interest rates by half a percentage point. Friesen explains the Bank of Canada is doing this in an effort to tame inflation.
"Inflation is running close to seven per cent in Canada," notes Friesen. "And that's one of their roles is by increasing interest rates it increased the cost of borrowing."
Steinbach Credit Union has increased its prime rate from 3.2 per cent to 3.7 per cent. As an example, Friesen says if you have a $100,000 mortgage, this increase will cost you an additional $500 per year in interest, or about $42 each month.
Friesen says their savings rate went up a little less than the full 50 basis points. The reason for that is because on the way down, they did not drop these rates at the same pace as the loan side. Their starting rate is going up 35 basis points today.
Meanwhile, Friesen says it sounds as though there might be another two interest rate hikes of 50 basis points each yet in 2022. However, he notes there are a number of factors in play. Friesen says they will have to slow down the interest rates if suddenly the economy starts to cool off.
"But if I was a betting person I would say maybe two more increases like the fifty basis points we just had," suggests Friesen.
He says we are still below pre-pandemic rates when the prime rate was 3.95 per cent.
"I think this is a good thing that interest rates go up," he says. "I think it's good for savers and I think borrowers are still paying a very low rate."