For millions of Canadians, whether or not the Bank of Canada increases interest rates tomorrow isn't merely a financial page headline. It's a matter of money out of their pockets.

July's single quarter-point rise, the first in seven years, was easy to set aside as a quirky exception.

But the notion of a second increase within two months suddenly changes the game.

In the world of compound interest, especially for consumers who have pushed borrowing to the limit, each quarter-point rise increases the pain exponentially.

Bigger payments

Not only would another quarter-point increase double the extra cash borrowers must scrape together to make their monthly payments, this time it is hard to ignore the writing on the wall that we are watching a trend.

As we have reported, U.S. rate increases are ominous for Canadian borrowers. U.S. Fed chief Janet Yellen's repeated warnings — passed on by CBC News — were bound to have a long-term impact on the cost of borrowing in Canada.

Payments on floating-rate mortgages and lines of credit pegged to a bank's prime rate are likely to rise immediately if the Bank of Canada increases rates this week. (Luke MacGregor/Reuters) But when the Bank of Canada moves, the effect is much quicker.

If you are one of the millions of Canadians who have a line of credit or a variable-rate mortgage where the interest rate is pegged to prime, the impact will be likely be immediate.

Those with fixed-term mortgages, or things like car loans where the rate is set by contract to cover the entire borrowing term, have a pad. They have time to think about where to find the money to pay higher rates once they renegotiate their mortgage or buy a new car.

And a rate rise will affect the price of houses. Just as higher interest rates push down the price of existing bonds, higher mortgage rates should have a similar effect on houses.

'No way to avoid the math'

"Every single rise, yes, that will mean house prices are going to drop," says realty consultant Ross Kay from Burlington, Ont. "It's simple math. There's no way to avoid the math."

However, he says the rules imposed by the Office of the Superintendent of Financial Institutions in anticipation of a series of rate rises like the one that could continue this week, have already had a bigger overall impact on the housing market.

This spring OSFI required most first-time buyers to pass a stress test, suddenly forcing them to qualify for rates two percentage points higher than those in the market. Kay says that impact on the cost of borrowing at the entry level has had consequences all the way through the market and may dwarf the fallout of another quarter-point rise this week.

A booming Canadian economy shows Bank of Canada governor Stephen Poloz got it right, but now he has to decide how urgently to raise rates. (Fred Chartrand/Canadian Press) In theory, rising interest rates, whether they come now or later, will hit consumers at many levels. That's because the cost of borrowing will rise not just for consumers but for businesses, too.

However the slowing effect of rate rises is far from instant. Research has shown the full effect of a rate hike is not seen in the real economy for more than a year.

At the end of last week, it was interesting to watch how the opinions of economists who analyze market expectations changed.

On Wednesday a poll of economists assembled by the financial wire services showed expectations of a rate rise were a fringe view. But after Thursday's startling Canadian quarterly growth figures, that began to change.

By the close of business before the Labour Day weekend, currency traders were betting more than even odds that a rate rise was on the way.

In the poll of economists, those saying they expected the bank to raise rates by another quarter-point had also begun to increase with credible voices including Avery Shenfeld at CIBC and Derek Holt at Scotiabank weighing in in favour.

But there are good reasons why there are still doubters.

A risk or an opportunity?

Modern central bankers don't like to shock the markets with sudden and unexpected changes. While Bank of Canada governor Stephen Poloz always deflects point-blank questions over whether he will raise rates, he and his team do a lot of hinting.

As the poll of economists — all of whom recognize the subtlest hints — shows, that did not happen this time.

Another signal against a September rate rise is that Wednesday's Bank of Canada release is scheduled to be a written statement only.

Usually changes as dramatic as a rise in interest rates would come with a verbal explanation by Poloz and his deputy Carolyn Wilkins, including a public question and answer session with financial reporters to clarify and justify the move.

In that way, a rate rise this week would be extraordinary.

One reason for such a sudden and unexpected move would be if the bank decided the stunning 4.5 per cent growth rate announced last week was a clear sign of an overheating Canadian economy and the bank judged a delay of another month before raising rates would be risky.

Another possibility is that Poloz, convinced rate rises are necessary, has decided last week's extraordinary growth figure presents a window of opportunity. With signs of a surging economy so fresh in everyone's minds, critics of a tightening rate policy will have little ammunition for saying Poloz has got it wrong.

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