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RBC boosts fixed-term mortgage rates

RBC has raised the interest rates on its two-year, three-year and five-year fixed-term mortgages by 20 basis points as bond yields rise in advance of a possible tightening of monetary policy next week by the Bank of Canada.

Bank of Canada expected to nudge up rates on July 12

Royal Bank has nudged up interest on its two-year, three-year and five-year fixed-term mortgages. (Mark Blinch/Reuters)

Royal Bank has boosted interest rates on some of its mortgages ahead of an expected increase in a key benchmark rate by the Bank of Canada.

RBC pushed its two-year, three-year and five-year fixed-term mortgage rates up by 20 basis points each. The two-year rate is now 2.54 per cent, while the three-year rate is 2.64 per cent, and the five-year rate moves up to 2.84 per cent. Those rates are for loans with amortization periods of no more than 25 years.

The fixed-term rates are heading up as bond yields climb in anticipation that Canada's central bank will boost its overnight rate on July 12. If the central bank does tighten monetary policy, it will be the first time in seven years.

The Bank of Canada target for the overnight rate currently sits at 0.5 per cent, with the market widely expecting a 25 basis point increase next week.

Frances Donald, senior economist at Manulife Asset Management, said the move by RBC is "another signal that economic and market agents are preparing for a rate hike next Wednesday, 

"It also opens the door to a Bank of Canada rate hike because it implies that the economy is already going to absorb higher interest rates via the banks themselves," she said.

With the Canadian economy performing well, senior officials at the Bank of Canada have been preparing markets for a possible hike, but the pressure to increase rates is not just a made-in-Canada situation.  The U.S. Federal Reserve boosted rates in June, with more hikes expected to come this year.

"We import higher rates via our bond curve from the United States, and the more we see higher rates around the rest of the world, the more the costs are going to rise for Canadian banks as well," Donald said.  

"We are clearly in the beginnings of a tightening cycle and these are not just influences from the Bank of Canada but from global sources as well."

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