Despite robust headline inflation and growing employment, the market expects no rate change when the Bank of Canada meets Tuesday.
A drab North American economy, strong loonie, and European debt concerns will keep rate hikes at bay, according to all 37 economists polled by Reuters. Not one of them expects a rate change until later this year or early 2012.
The overnight rate has now stood at 1.00% for nine months.
Here are some soundbytes about Tuesday’s rate announcement:
“The arguments are there for the Bank of Canada to start hiking rates next week, but we increasingly think that this fall might even be too early given the problems we are seeing in the global economy.” — Jimmie Jean, Desjardins Capital Markets. (Source: CBC News)
“While (the recent) pace of economic growth will be sufficient to get the economy back to full potential by mid-2012, we highly doubt this news will push the Bank of Canada off the sidelines at next week’s fixed rate announcement date…In fact, the Central Bank is likely to stay on hold through the rest of 2011.” — Diana Petramala, TD Economics. (Source: TD research note)
“Even with business confidence on the rise and inflation surpassing the Bank’s prior expectations, the accompanying text may disappoint inflation hawks, in light of unexpectedly soft recent performance stateside and diminished global confidence.” — Peter Buchanan and Emanuella Enenajor (Source: CIBC research note)
Steve Huebl, CMT
Last modified: January 4, 2022
“A drab North American economy, strong loonie, and European debt concerns will keep rate hikes at bay…Not one of them expects a rate change until later this year or early 2012.”
How do the above factors influence the bond yields and ultimately the fixed mortgage rates?
Hi Mel, These factors are serving to keep 5yr yields and fixed mortgage rates lower than they otherwise might be. At some point, the uncertainty will subside, the U.S. economy will stabilize and Canadian core inflation will exceed the BoC’s 2% target. Barring other unforeseen debacles, we’ll then likely see 5yr yields move materially higher. But it may take a while to get to that point…
Cheers.
Thanks so much Rob for your constant updates and comments. Come to your site everyday!
chris
Hey Chris, Thank you sir!
Thanks Rob! Given today’s news from BoC keeping the rate unchanged but indicating higher rates may be coming sooner rather than later….would you advise on taking a variable (P-.9%) or fixed (3.65% 5yr fixed)? I know you don’t have a crystal ball but your expertise is very much appreciated.
Hi Mel,
Thanks for the question. Unfortunately, we can’t give personal advice based on limited information shared in a public forum. What I can say is this:
Mathematically speaking, a 5yr fixed and variable are neck and neck in terms of hypothetical interest cost over five years, based on Big 6 bank forecasts. (That assumes a reasonable margin of error of course.)
As a result, a lot of qualified homeowners are choosing hybrid mortgages to hedge their bets. That’s where you do part variable and then put half, a third, a quarter, or whatever you want in the fixed portion.
On the other hand, there are a ton of reasons why you might want to pick one term or the other. You’d probably be well served to chat with a professional for a personalized term analysis.
Cheers…
Rob