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Interest rates go up. Will it affect students?

The Bank of Canada headquarters.

The Bank of Canada increased its interest rate by one-quarter of a percentage point to 1 per cent today, but indicated that the rate would not be raised again without clear signs of  economic recovery.

The bank said that increased personal and corporate spending in the past quarters combined with predicted future spending was sufficient grounds for a raise in their key lending rate, despite Canada’s asymmetrical economic recovery.

“Consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields,” the bank said in a statement.

However, Canadians are unlikely to see another raise in interest rates in the near future because the gross domestic product has increased less rapidly than the bank had predicted. The GDP grew by 2 percent in the second quarter of 2010, a noticeable drop from the rate of 5.8 in January to March.

The Bank of Canada’s decision will create higher interest costs for some mortgage holders and consumer and business borrowers. A question that remains to be answered are the implications this will have for the many young Canadians who have student loans and have finished their post-secondary careers. When contacted by VO, the bank declined to provide any further information regarding this issue.

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