The Bank of Canada raised its benchmark interest rate on Wednesday for the first time since 2018, a move that will affect the cost of borrowing for various loans, including mortgages.

For most of the pandemic, the bank’s benchmark rate – also known as the policy rate or key rate – had stood at 0.25 per cent, matching a record low set in the aftermath of the global financial crisis of 2008. With Wednesday’s hike, the benchmark rate is now at 0.5 per cent.

But if the central bank is confident enough about the economy to start pushing the overnight rate higher, expect interest rates in the bond market to rise as well. This explains how an increase in the overnight rate can indirectly affect fixed-rate mortgages.

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