Interest rate increase leads to questions about farm financial fitness
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LETHBRIDGE – Farm Credit Canada (FCC) says farmers should review their financial strategies following this week’s modest increase in the Bank of Canada’s interest rate.
Chief agricultural economist J.P. Gervais says the increase is not significant enough for most farmers and agribusiness operators to revise their business strategies.
But he says they should consider reviewing their long-term financing options with the expectation that this could be the beginning of a slow and gradual increase.
He says if a producer is already carrying significant financial risk, then reducing the risk of rising interest rates may be a smart strategy. He suggests they should consider locking in a portion of their books so they’re not potentially exposed to future fluctuations in rates
According to FCC, there are three factors behind the possibility of seeing rates trend up, inflation expected to increase in next 18 months, the economy has largely recovered from low oil prices, and economic growth expected to improve.
Producers can check out the FCC Farm Financial Fitness post on how a rise in interest rates can impact their debt service ratio.
