The Bank of Canada has made it’s final interest rate decision of the year, leaving interest rates at 1 percent, but warning that increases are likely. The rate has remained at 1 percent for two consecutive policy announcements, but it is an artificially low rate. It was previously raised twice following a boost in the Canadian economy.

The Bank Remains Cautious

Though the bank has been raising rates over the last year, it is hesitant to continue to do so without some caution. There are still uncertainties on the global economic scale, and raising the rates too high too quickly could lead to adverse results. The bank is attempting to raise rates slowly and steadily as Canadians have become accustomed to an environment with extremely affordable lending conditions.

Artificially low interest rates are introduced to stabilize economies and to encourage growth. But these low interest rates aren’t intended to last; they are only intended to continue as long as the economy is recovering. Therefore, it’s a question of when, not if, the interest rates are going to go up.

Higher Rates May Be Supported in the Coming Months

Even though it did make the decision not to raise rates, the Bank of Canada also noted that there may be a rate increase in the coming months. This rate increase would be based on several positive economic factors:

  • Job and wage growth. Canada has created a record number of jobs in 2017, wage growth has been accelerating in Canada — giving Canadian consumers more money to spend.
  • Low unemployment rates. The unemployment rate in Canada has fallen to the lowest level since November 2008, indicating strength within the workforce.
  • High consumer spending. Canadian consumers have continued to spend even as interest rates have increased, and they don’t appear to be swayed by higher (but manageable) amounts of consumer debt.

It’s important to remember that not only will lending become more expensive, but lending in the housing market is about to become more restrictive. Starting January 2018, mortgage borrowers will need to adhere to stricter financial testing, qualifying for rates above that which they will actually receive. These financial tests will be added upon any interest rate adjustments and could leave home borrowers with significantly less money to work with when buying a home.

Low interest rates are good news for current buyers: It means that it’s still easy to borrow money right now. But you should be aware that interest rates are going to go up — it’s only a matter of time. Take advantage of these historically low rates now, as there isn’t going to be a better time to enter into the market. Not only will interest rates go up, but property costs are going to continue to rise — and financial tests are going to become more stringent.