02/27/2021
Over the past week, many news outlets have been speculating on the rise of
interest rates in North America.
So what happens to the economy and the stock market when the interest
rates change.?
First, to understand interest rates, in its most basic form, it refers to the cost
someone pays for the use of someone else's money. When interest rates
increase,it costs financial institutions more to borrow money, these same
financial institutions often increase the rates they charge their customers to
borrow money. So, individual consumers are impacted through increases to
their credit card and mortgage interest rates, especially if these loans carry a
variable interest rate. When the interest rate for credit cards and mortgages
increases, the amount of money that consumers can spend decreases. In
Canada, on 8 issued scheduled dates each year, the Bank of Canada issues a
press release announcing its decision for the overnight rate target together
with a short explanation of the factors influencing the decision to raise or
lower interest rates.
Consumers still have to pay their bills. When those bills become more
expensive, households are left with less disposable income. When consumers
have less discretionary spending money, businesses' revenues and profits
decrease. You can earn more at www.bankofcanada.ca. The next scheduled
press release is set for March 10, 2021.
With interest rates at near 0%, people retiring now face the daunting task of
generating income from their portfolios. Scotiabank’s Derek Holt, who warned
that the slack currently being seen in Canada’s economy could disappear
sooner than most experts are expecting.
“The prudent thing to advise heavily indebted Canadians is to plan their
finances around rate hikes commencing considerably sooner than the Bank of
Canada has guided even up to last week’s announcements,” Holt wrote last
Friday. But, Dominion Lending Centres chief economist Dr. Sherry Cooper says
some economists may want to take into consideration one of the glaring
weaknesses in Canada’s battle against COVID-19 before getting too ahead of
themselves.
“One of the biggest reasons [the Bank of Canada] can’t raise rates this year is
the vaccine rollout debacle,” Cooper said. “There is no way everyone who
wants a vaccine will get one by September, as the Prime Minister has
promised.” Cooper also said that for the Bank of Canada to justify rate
increases, its 2% inflation target would not only need to be reached, but
sustained.
For the new investor just entering the markets or if you just want a better
understanding of interest rates and how they work and affect the markets,
educate yourself better sign up for our new investor course here at
www.bluesharkinvestor.com.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki
