BoC Meets on Interest Rates Tomorrow

Bank-of-Canada-Mortgage-Rates All eyes in the mortgage industry will fixate on the Bank of Canada (BoC) tomorrow.

People are eager to see if the Bank’s interest rate statement will yield any potential clues on the direction of rates.

As most now know, the BoC conditionally committed to keep rates flat until Q3 next year.  After that, anything goes. In September, BoC governor, David Longworth, said, “One would expect there would be some movement up in interest rates following the end of June 2010.”

Since Longworth made that statement, there’s been more talk in the media about rates going up sooner.  That’s due to recent hints of economic strength.

So far, however, inflation (the main rate hike catalyst) is nowhere to be seen.  As a result, 23 of 23 major economists surveyed by Bloomberg expect no change by the BoC on Tuesday.

When rates finally do begin their ascent, the magnitude of the increases will depend on how fast the economy roars back.  Some economists think the BoC will have its hands full next year.  On Friday, for example, the Conference Board said it expects the Bank of Canada to lift rates 3.75% by 2011. (CBC)  That’s one of the most aggressive rate hike forecasts so far.

At the moment, most economists’ predictions seem to be for a 2.0-2.5% eventual increase.  But few expect any imminent action.  Eight of 12 primary bond dealers polled by Reuters believe the Bank will not raise rates until late 2010. (Reuters)

  1. There are now 2.15% vrm 5 year closed being posted on-line. None of the major banks have followed yet so lets get the pressure on them!!!

  2. So why am I in a 2.45% variable that I signed in sept and there are these better rates, shouldn’t my bank lower my rate since I am in a variable with them?

  3. It sounds like you are in a “prime + .20%” severn camal, so the only time your rate changes is when the BOC changes the prime rate. That is why it is so important to get the best rate possible at the start. Both RBC and Scotia turned down my request for a “prime – .50%” that would match my current mortgage.

  4. When you said some economist believe the BoC will have its hands full next year, in what ways?
    Is there any validity to the claim that any gains in the housing market are only because of low interest rates and any subsequent rise (as we are seeing) will negatively affect future sales and economic strength (in the next year, since people who might have bought NEXT year, did so THIS year because of the low interest rates)…
    Thanks. Be kind!

  5. Well, some of the sales in Ontario may be attributed to the 8% PST to be slapped on homes over $400k+ effective next July.
    I personally know of a couple of buyers looking at $900k+ homes deciding to buy this year to beat the ‘new tax’
    Well, did I say new tax ? I must be confused. Didn’t my Prime Minister & Premier have promised no new taxes :-)

  6. We are just renewing our variable 5 year mortgage at 2.25% but have been informed today about making a change to 3.89% fixed. We have been in variable for many years and this looks good – based on other comments on your WEB page above. Toronto Market

  7. Is there anything I can do?
    I’m in a 5.69% 5 year mortgage. Been paying it for 2 years now. I enquired and got told my my mortgage broker that to get out of it would cost me $20,000.
    The people posting on here are so fortunate to be able to take advantage of low rates. Many of us wish we were advised better 2 years ago.
    Kind regards.

  8. Brian – Why are you focusing only on the Conference Board’s 2008 estimates? A lot of economists, including the Bank of Canada, were off base in 2008. Why not talk about the Conference Board’s 10-year track record instead?

  9. Al,
    I believe you are getting hung by the wicked IRD calculation…However, depending on the deal, you may want to take that hit by either adding on top of your existing mortgage, or paying it out. Do the calculations, if you can get a better rate you may save yourself more than that 20k you would have to pay.

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