The Bank of Canada gave mortgage shoppers an early Christmas present today. They lowered their target lending rate, and by default prime rate, by 1/4%.
It was a surprise to most surveyed economists who expected no change at the BoC’s meeting today. It’s also the first BoC rate cut in over 3 1/2 years, and a reversal of the bank’s July rate hike.
Based on the average Canadian home price of $308,214, the 1/4% cut will save a new mortgagor $46 a month on a variable-rate mortgage.*
Fixed-rates should hopefully fall soon as well given that 5-year bond yields are at a new 2-year low of 3.66%.
The Bank’s reasons for cutting rates included subprime-related “difficulties,” weakening exports, and lower than expected inflation.
The BoC gave few hints of it’s next move, to be announced at its January 22, 2008 rate meeting. However, they did say “there has been a shift to the downside in the balance of risks” to inflation through 2009.
Lower inflation typically means lower interest rates.
____________________________________________________
* With 0% down, 25-year amortization, and 6% interest.
I was half expecting this one to be left alone since inflation is still at 2.4%. The dollar was down to almost exactly par. I figured this meant they were going to let things ride for year end and see how the last of the shopping season went. Oh well, I guess they know more about what’s going on than I do.
Hi Traciatim, You’re not alone. It will be interesting to see if this cut fires up further inflation out west. It’s a different world out there compared to Ontatio–which needs a rate cut because of manufacturing losses. Cheers, Melanie
The cut in part due to the fear of what effect the US recession will due to Canada.