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Originally Posted by 6thGear.
Banks would never raise interests at such an alarming rate. As someone pointed out it will go up in small increments. If such a thing occurs it will take years. Only thing banks can do is stiffen lending rules. But ask any banker, no one can predict what future mortgage rates will be, only speculation based off of analysis
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Never? The interest rates offered by lenders trail that which is set by the BOC, it's not a matter of the lenders cranking rates so much as the BOC.
Just incase anyone is curious as to why rates shot up so high/fast in the 80's;
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During the early 1980s Canada experienced higher inflation, interest rates and underemployment than the United States.[57] The bank of Canada rate hit 21% in August 1981, and the inflation rate averaged more than 12%.[58] During this inflationary period, Canadians sought to protect themselves through investment in the housing market. Some saw an advantage to high interest rates through speculation in real estate and other assets. This increase in transactions was financed through borrowing and ultimately caused debt levels to rise.[59] Canadian firms, preoccupied with prospective investment opportunities due to high inflation, no longer focused on innovation and productivity improvements. In addition, high inflation was partly responsible for larger government spending. The overall tax burden rose from 27% of income in 1951, to 34% in 1969, to 37% in 1988.[60] From 1975 to 1992 national debt more than tripled to 8% of GDP.[61] The resulting high interest rates caused more Canadian income to be paid out to foreign holders of Canadian public and private sector debt. During this period Canada changed from a country producing and exporting mainly primary products to one that increasingly produced and exported manufactured goods.[57] Jobs were lost to mechanization in industry. Moreover, globalization meant that Canadian firms had to down-size their workforce in order to stay efficient and compete internationally.[62] In early 1980s, Canada’s unemployment rate peaked at 12%.[58] It took almost four years for the number of full-time jobs to be restored.[62] A slowdown in productivity also emerged during the recession. Real GDP declined by 5%[58] between June 1981 and December 1982 and average output per worker slowed to 1%.[58] The U.S. decision to switch to a floating exchange rate devalued the Canadian dollar. By 1979, the Canadian dollar was worth 85 cents U.S., which made U.S. imports more expensive. On the other hand, Canada’s major exports declined in price. Combined with high inflation, and interest rates, these high commodity prices reduced the standard of living.
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Interest rates can, and do, move quickly in response to changes in macro economic sentiment.