The Bank of Canada raising its benchmark interest rate to 2.5 per cent on Wednesday didn't come as a surprise to many, including Brian Golly with Smart Investing Solutions and Adam Pukalo of Harbourfront Wealth Management.
Golly believed the Bank would increase the rate by a quarter percentage point, in line with what economists were expecting, based on inflation pressures on the cost of living.
Pukalo was leaning towards holding the interest rate as he didn't feel an increase was necessary at the moment, even with higher oil prices and inflation rate. However, he understood why the increase was made.
The Bank of Canada cited the CPI inflation rate projected to rise to 3.5 per cent by year-end – compounded by high energy prices and conflict in the Middle East – and GDP growth to slow in the fourth quarter of 2026 due to new U.S. tariffs among reasons for the decision to bump the interest rate.
"So we'll see how energy prices impact that because if we do see energy come down, inflation comes down, and then that's something that we can watch on the rate side as well." Pukalo said.
Farming clients have asked questions about how the change would impact their operation in terms of debt management, Pukalo said.
Generally speaking, he said it all depends on the financial situation as the change could be looked at as good for some, but bad for others.
"Let's say if you were to take a new variable rate mortgage out right now, again, a lot of factors depending, but a new variable rate mortgage right now on a $500,000 (home), the 0.25 per cent increase would add roughly about $66 more per month to a new payment," Pukalo explains, "The opportunity there definitely is possibilities of GIC rates going up, savings rates going up as well too.
"I know GIC rates have increased. There's one investment that I look at for clients called a principal protected note that can pay, you know, anywhere between five to seven per cent right now, depending on the structure, so there are definitely opportunities as well."
Golly noted the Bank of Canada's decision came the same day the U.S. Federal Reserve decided to hold its interest rate.
"That’s kind of the debate, whether you go too early or you wait until it's too late and I think the Bank of Canada’s thinking they wanted to increase rates a little bit so they…didn’t have to do make such a large increase down the road kind of thing," said Golly. "They are trying to get on top of what we’re seeing as far as food costs and energy costs and those types of things, which are affecting our everyday cost of living."
There was some movement on the markets following the announcement, but Pukalo said the U.S. markets were responding more to negative earnings reports and the TSX was down "a little bit mainly because of what's happening in the U.S."
However, he noted some "positive ripple effects to the interest rate increase" – ETFs of all the major banks was up 1.2 per cent a day after the announcement.
Moving forward, Golly said whatever happens in the next 30 to 60 days will determine the next course of action for the Bank of Canada.
"W e'll see how we get through the midterms down in the U.S. and those types of things," he said. "And if we can get some relief at the gas prices, especially diesel prices, those kinds of things, then that might help as well and we might be talking about them just holding steady for a while.”
The Bank of Canada's next interest rate announcement is schedule for December 9.
