Despite the Bank of Canada’s rising interest rates, experts say the impact on Canadian stocks will be minimal. The details of the change will be officially announced Tuesday, but until then, predictions are that the increase will be 25 basis points, which will bring the central bank’s key interest rate to 0.75%.
Rising interest rates traditionally means bad news for stock markets, but “What they really point to is some return to normalcy,” says TD Waterhouse chief portfolio strategist Bob Gorman. Canada is the first Group of Seven industrialized nations to raise interest rates since the stock market crash in September 2009.
In absolute terms, interest rates are low, reports the Financial Post. “The central bank cut its key rate to a record low 0.25% in April 2009 in an aggressive response to the financial crisis and resulting recession,” writer Jennifer Kwan says. Analysts expect the overnight rate to rise to 1.25% by year end, and to 2.5% by the end of 2011. “Even then, rates will be lower than they were in early 2008,” Kwan says. In comparison, the central bank raised interest rates 2.5% between late 2004 and mid-2007 to a key rate of 4.5%.