U.S. Rate Hike Puts Pressure on Canadian Borrowers

The U.S. Federal Reserve raised interest rates for the first time in three years on Wednesday, sparking concerns that the Bank of Canada may follow suit. This move could put pressure on Canadian borrowers, as higher interest rates make it more expensive to take out loans and mortgages.

Derek Holt, economist and vice president at the Bank of Nova Scotia, believes the U.S. rate hike will 'add one more ingredient to pave the way' for the Bank of Canada to raise borrowing costs soon. The central banks aim to maintain a balance between inflation and economic growth by adjusting benchmark interest rates.

Canada's consumer inflation has been around 3% through July and August, while U.S. inflation was last reported at 3.4%. A weaker Canadian dollar in the face of a stronger U.S. dollar can risk inflation rising in Canada, making imported goods more expensive.

Doug Porter, chief economist at the Bank of Montreal, notes that although the recent drop in the Canadian dollar is relatively small, it could put pressure on the Bank of Canada to raise rates like the Fed did. However, he doesn't think they'll be overly concerned about a mild decline in the Canadian dollar yet.