December 4, 2023


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Local financial advisor explains why interest rates continue to rise despite a drop in inflation –

2 min read

The cost of borrowing just got more expensive, as the Bank of Canada raised its key interest rate to five per cent on Wednesday, the highest it’s been since 2001.

Local financial advisor Aaron Ruston, with Purposed Financial, says many people are questioning why interest rates are going up when inflation is dropping.

“The economy is actually looking pretty robust with all the immigration coming in right now, but what we’re finding is on top of the new carbon taxes and other additives that are adding to the price of everything, it continues to drive prices up even though the inflationary rate overall is dropping,” he explained.

Ruston notes those with variable rate loans and mortgages will feel the biggest hit.

“Those that are having variable rates, prime is close to seven per cent, it will be, so imagine if you are at seven per cent prime and then banks and various institutions are charging say prime plus two per cent. We have people that are close to nine per cent on variable rate lines of credit and loans. It can be devastating, this whole thing.”

He says these most recent interest rate hikes might be the catalyst that results in many people not being able to meet their monthly debt obligations.

The Bank of Canada’s next interest rate decision will be made on September 6th.

“Inflation is coming down from 8.2 per cent, it’s down to 3.4 now. I don’t see that reflected in the prices at the stores. I’m wondering if they’ll actually breathe for a bit and just see what’s going to happen overall. It wouldn’t surprise me to get another 25 basis points. I have a feeling they’re going to let it breathe for a little bit, so maybe we’ll see the next hike in the next period after that,” concluded Ruston.


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