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What’s with these interest rates?

With skyrocketing rates, and inflation recently hitting a 38-year high, this is the moment for Canadians to take stock of their debts

Jean-Paul Lam is an associate professor of economics at the University of Waterloo

In June, the Bank of Canada made an announcement that sent shockwaves through the housing market. It hiked its key interest rate to 1.5 per cent, hinting at more aggressive increases to come. It soon delivered on its promise. In mid-July, the key rate was raised to 2.5 per cent. The decision makes sense: Canada isn’t just experiencing high inflation; it’s experiencing persistent and volatile inflation, at levels we haven’t witnessed in almost 40 years. A pandemic plus supply constraints plus excess demand—plus a labour shortage? Economically, it’s a perfect storm. The bank is trying to cool things down.

When the key rate rises…

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