Recent changes in U.S. interest rates could have a ripple effect for Alberta producers, says a provincial analyst.
In mid-December, the U.S. Federal Reserve — the country’s central bank — announced it was lifting its key rate by a quarter-point to a range of 0.25 per cent to 0.5 per cent. The long-expected move put an end to seven years of near-zero borrowing rates.
However, because of the oil crash, strapped consumers, and a sluggish manufacturing sector, the Canadian economy is much weaker and so the Bank of Canada isn’t expected to follow suit any time soon.
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But the rise in the U.S. interest rates will still be felt north of the border, said Todd Bergen-Henegouwen, farm input analyst with Alberta Agriculture and Forestry.
“The decision to raise rates can certainly impact Canadian individuals and businesses,” Bergen-Henegouwen said in a release, noting the loonie fell by more than a cent in the week following the Fed’s announcement.
And while the prospect of an immediate rate hike here is slim, it’s a good time to review how an increase would affect your farm business, Bergen-Henegouwen said.
“A rate increase would most directly impact short-term loans such as your operating loan, but could certainly also have trickle-down effects on long-term loans as well,” he said.
For example, an increase of 0.5 per cent on a $1-million, 10-year loan would increase semi-annual payments by $1,445.
“Producers are encouraged to think how a change in interest rate might impact cash flow and what options and rates are available to producers today,” he said.
