Borrowing Rates Going Up

For the first time in more than a year, the Bank of Canada has raised its trend setting raised interest rates. The bank raised its overnight rate to from 2% to 2.25%

The bank cut rates earlier this year to stimulate the economy. The last time borrowing costs increased was in April 2003.

Economists think their may be more increases ahead. They are now expecting the bank to increase the rate .25% in its October 19th and December 7th rate announcements.

Why the increase? The economy is performing ahead of the bank's expectations. The difference between what an economy is capable of producing and what it actually produces is closing faster than expected. Core inflation is also running just below the midpoint of the bank's 1% to 3% target.

The bank rate is our central bank's key monetary policy tool. It is the average interest rate that the Bank of Canada charges banks on overnight loans. When the Bank of Canada rate changes, typically banks change their prime lending rates.