The BoC Sits Tight…Again

Prime rate has been entrenched at 3% for four years now, the longest stretch of flat rates since the 1950s. And the BoC gave no hint of change at today’s rate meeting.

Here’s the gist of its statement from this morning:

  • The BoC attributed the recent inflation upturn to “temporary” factors
  • “…The housing market has been stronger than anticipated,” it says (no doubt mortgage policy-makers are watching home prices like hawks)
  • The bank believes our economy could run below capacity for “the next two years”

But it’s usually the last paragraph that matters most in BoC statements, and the key line from that paragraph was:


BoC Update: Rates Stay Level

Macro of a yellow spirit level on whiteLike most of its last 29 rate announcements, today’s Bank of Canada rate statement was a snoozer. But for those with debt, dull is good. It keeps a lid on variable-rate borrowing costs.

For most, the only meaningful line in the BoC’s statement was:

With inflation expected to be well below target for some time, the downside risks to inflation remain important.

In other words, there’s no danger of variable rate hikes for as far as the eye can see. So, if you’re like most financially secure borrowers in a discounted adjustable-rate mortgage, there remains little reason to lock in.


BoC Decision: Pleasantville for Variable Mortgagors


Today’s Bank of Canada (BoC) interest rate decision was reassuring for variable-rate borrowers.

  • The Bank announced that Canada’s key lending rate will remain just 75 basis points above its all-time low.
  • The Bank suggested its next move is just as likely to be a rate cut as a rate hike.
  • It said the risk of falling inflation “has grown in importance” and that inflation won’t rise back to its target for “about two years” (suggesting even less chance of a prime rate increase through 2015).

Even if inflation does return to its 2% target, that alone isn’t enough reason for the Bank to raise rates.

So essentially, it’s Pleasantville right now for variable-rate borrowers, with no hikes in sight.


BoC Rate Guidance: Use with Care

Bank-of-Canada-Benchmark-RateThe Bank of Canada exudes credibility. It’s an internationally respected central bank, it operates with minimal political interference and it has contained inflation for 22 years.

So when a Bank Governor gets surprisingly hawkish, we immediately see headlines like “Interest rates expected to increase.” Thousands of mortgagors key off those headlines and scramble to lock in fixed rates.

That very thing started happening in April 2012. But, as this Yahoo! Finance story points out, Canadians paid a price if they heeded Mark Carney’s 2012 warnings and locked in.


Bank of Canada Rate Biases

Road to Higher Interest Rates - Words on StreetWhen the Bank of Canada talks rates, analysts hang off of every word. They pay special attention to biases in the Bank’s wording (i.e., which way the Bank is leaning on interest rates).

The media loves to pump commentators for predictions on whether the BoC will keep its rate “bias,” not keep its bias, do something unexpected with its rate bias, and on and on. It’s quite the drama over what is usually a 1-3 sentence statement in a BoC press release.

On Wednesday, the Bank of Canada left Canada’s key rate alone. It also chose to leave its 13-month-long rate hike bias intact, saying:

“…the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”

The question some may be wondering is, should this sort of statement mean anything to the average mortgage consumer?


No Action from the BoC

BofCThere was no rate change to report from the Bank of Canada today, and nobody expected one.

Canada’s base interest rate remains at 1.00%. It has held that level for 952 days, an unprecedented stretch of flat monetary policy.

The Bank of Canada’s Mark Carney continues to maintain that “the next move (in rates) is likely to be up.” That so-called “tightening bias” has been in place for more than a year.

But if the next move is indeed up, it won’t be happening this year—that is, if you believe the forecasts of virtually every economist in Canada.


Higher Rates “Less Imminent” Says BoC

BofCThe Bank of Canada surprised most analysts today by cutting Canada’s 2013 growth estimate (to 2.0%) and calling the timing of the next rate hike “less imminent than previously anticipated.”

The BoC has used the “less imminent” wording before, but not in any recent rate decision statements. It attributed its position, in part, to “more muted inflation” and cooling household debt levels.

The decision leaves Canada’s prime rate stuck at 3.00% for the 27th straight month—to the delight of most variable-rate mortgage holders.