No Change to Rates

Bank-of-Canada-RatesThe Bank of Canada kept Canada’s key lending rate at the same place it’s been for a year: 1.00%.

As a result, variable-rate mortgage holders can expect prime rate to also stay put at 3.00%.

The BoC said this about its decision:

  • “In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished.”
  • “Core inflation is expected to remain well-contained…”
  • “Largely due to temporary factors, Canadian economic growth stalled in the second quarter.”
  • “The Bank continues to expect that (domestic) growth will resume in the second half of this year…”
  • “…U.S. growth will be weaker than previously anticipated.”
  • “Growth in emerging-market economies has been robust…”

The main takeaway here is that the BoC is no longer talking tough about rate increases, as it has recently. That supports the market’s thesis that rates will remain lower for longer.

As always, the Bank of Canada’s overriding goal is to keep inflation near 2% “over the medium term.”

Its next interest rate meeting is October 25. The financial markets expect no rate increase then either. In fact, traders are currently pricing in a 20% probability that the Bank of Canada will cut rates at this meeting (that number is highly volatile and may change by the time you read this).

The benchmark 5-year bond (which leads 5-year fixed mortgage rates) is trading at 1.435%, up 4 basis points on today’s news. It sits just over 13 bps above its all-time low of 1.302%.

Rob McLister, CMT

  1. Dave,
    Fixed rates are not affected by B0C prime.
    np: just how low do you want them to go? Fixed rates are pretty close to the lowest level they have ever been . . .

  2. duh i know fixed rates arent affected by the boc prime….but there is room for the fixed rates to go down (read robs recent columns and his quotes in the globe) and until fixed rates drop folks like me aint gonna move from variable

  3. check out goldman sachs…they just predicted a rate cut by the BOC later this year…why would anybody switch from a variable at this time unless those fixed rates came down a few more notches…hey banks, anybody listening there…quit counting your money and drop them fixed rates a few notches

  4. A few of the banks have increased their margins due to uncertainty in the bond market. It’s tough to tell whether or not there will be much movement in fixed rates if the banks maintain these high margins. If yields were to rise, that would be a different story…

  5. My question is will this encourage lenders to again lower rates on variables? It would be nice to have a range of p-.80 or better products to offer my clients again.

  6. np:
    (1) The fixed rates comment was directed at Dave, who asked what this might do to fixed rates. That’s why I prefaced the comment with “Dave”.
    (2) Why do you think the Banks care whether you switch from a variable rate to a fixed rate? They are making plenty of money keeping the fixed rates where they are . . .

  7. I heard a rumour that the guys who started Resmor are getting a bank license and launching a new lender. Has anyone else heard anything similar?

  8. Some anonymous brokers on redflagdeals website are promoting 2.99 for 5 year fixed from National Bank. Have no idea if that’s legit

  9. I think a more alarming development that people seem to overlook is the fact that the Bank of Canada, together with the Fed and the ECB, have literally no more ammunition to combat another recession should we be heading into one.
    The Fed’s lending rate is already nearly at zero and a 1% target rate in Canada doesn’t offer a whole lot of flexibility to stimulate the economy should we head into another recession. While both federal and provincial governments can introduce stimulus measures yet again, all they’re really doing is kicking the can down the road.
    We’re also seeing that austerity measures may not be the magic potion that some people (most notably the tea baggers) advocate so strongly. Austerity in Europe didn’t fix anything and only made things worse.
    If we get into another prolonged cycle of stagnant growth and increasing unemployment, very low interest rates may be the “new norm”.

  10. I think a more alarming development that people seem to overlook is the fact that the Bank of Canada, together with the Fed and the ECB, have literally no more ammunition to combat another recession should we be heading into one.
    This is, quite simply, nonsense.
    Still available strategies:
    – rate cuts (there is still room)
    – conditional commitment to keep rates unchanged for a period of time (a la US Fed)
    – sterilized credit easing
    – infrastructure spending
    – etc.
    – unsterilized quantitative credit easing

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