Why interest rates are rising and how it impacts you

The Bank of Canada has continued its move to raise interest rates to confront soaring inflation. Increasing interest rates is a standard economic move in times like this, but as interest rates rise, ordinary Canadians are experiencing the consequences of those decisions.

According to an Ipsos poll, six in 10 Canadians are concerned about the impact of interest rates on their financial situations. The issue is now becoming political, with Canadians concerned about how they can service their debts.

Here’s everything you need to know about the impact of increasing interest rates.

Why interest rates are going up

Interest rates have remained at record lows for much of the last 15 years. Originally, interest rates were lowered to near zero in the wake of the devastation caused by the 2008 financial crisis. Lowering interest rates saved millions of homes and businesses.

However, the extraordinary demand for goods following COVID-19 lockdowns and the constriction of supply due to the war in Ukraine has created the perfect storm for inflation to surge.

Tackling rising inflation means releasing what caused the inflation in the first place or increasing interest rates. The Bank of Canada has made it clear that it expects to continue hiking interest rates in accordance with changes in inflation.

Rising interest rates are good news for some and bad for others.

Canadians struggling under rising interest rates

Savers and homeowners benefit from increased interest rates because their money increases in value. However, the financially vulnerable have found themselves at risk.

Holders of debt will find themselves paying more to service their debts every month. Businesses looking to borrow can also expect to face larger monthly repayments. Within the crowded Canadian housing market, first-time buyers are finding it more difficult than ever to get onto the housing ladder.

Managing interest rates versus inflation is a fine balancing act that the Bank of Canada needs to get right to avert the risk of causing more economic pain than necessary.

In particular, areas such as Alberta may suffer more due to a lack of economic diversification and rising oil and gas prices.

Hedge currency losses with forex trading

The damaging impact of inflation means that your Canadian dollars become less valuable the longer inflation remains higher than interest rates. While inflation is a normal aspect of the economy and why prices today are higher now than they were 50 years ago, the current situation means your money is losing value with every passing month.

Forex trading is a smart way to hedge against losses related to the strength of your local currency. If trading intelligently, you can even create an extra stream of income to protect you against the cost-of-living crisis.

But how do you get started?

The first step is to find a reliable, locally regulated broker to place your trades with. Many reputable brokers will use a platform like Metatrader 4 by AvaTrade, to give you all the tools you need to start trading.

Create your account and complete the verification procedures. It should take no more than a few minutes to enter all the information you need. Once verified, you will be able to connect your bank account with the platform and deposit your funds to start trading.

Like any form of investment, there is always the risk of losing money. Only trade with money you can afford to lose and educate yourself on how forex trading works before using real money.

Learning along the way ensures that you are in the best position to make the most of the prevailing economic conditions in Canada and further afield.

Will interest rates continue to increase for Canadians?

It’s impossible to gaze into a crystal ball to see where the markets will move next. The Bank of Canada has refused to rule out future interest rate hikes in 2022 and 2023.

However, the latest interest rate rise of 50 basis points was smaller than the 75 points the markets expected. Inflation has decreased from its 2022 high recently, giving hope to the financially vulnerable that interest rate projections will fall short.

The Bank of Canada has signalled that it is willing to act if the situation changes drastically, meaning that Canadians need to prepare the best they can for any sudden economic changes.


High inflation is increasing the cost of living, and interest rates make it more difficult for people to service debt. However, both are vital economic levers for maintaining stability and averting a crisis.

Take control of your finances and plan for the future, including saving and securing additional streams of income.

What are you doing to ensure you remain afloat during this tricky economic period?