It’s Status Quo With the BoC

Bank-of-CanadaCarney and company have again left Canada’s trendsetting overnight rate as is. That leaves prime rate steady at 3.00%, with no change in sight.

It’s been two years now since prime last inched higher, giving variable-rate mortgage holders an unexpectedly long vacation from higher interest costs.

In its statement today, the Bank said:

  • “…Global headwinds continue to restrain economic activity…”
  • “Economic growth is expected to pick up through 2013…”
  • Core inflation…is expected to return, along with total CPI inflation, to 2 per cent over the course of the next 12 months.”
  • “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

When it will become “appropriate” is anyone’s guess. CIBC economist Avery Shenfeld calls the Bank’s jawboning on rates “only words, not action.” Its hands are tied with a global and domestic economy that remain in choppy waters.

For what it’s worth, Bay Street rate seers forecast the next boost to prime in mid- to late-2013. That date has been continually pushed back since the BoC last lifted rates in September 2010. Pretty much the most one can surmise with confidence is that rate cuts appear out of the picture this year, given the Bank’s tightening bias.

The bond market was little changed on the BoC announcement with the 5-year benchmark drifting around 1.33%. Its one-year average is 1.40%.

The next BoC rate meeting is October 23.

Rob McLister, CMT

  1. For someone with no plans to move or refinance in 5 years, what would everyone recommend? A 5 year fixed at 3.09% or a variable at 2.65%? We have high credit scores and good (government) jobs.

  2. At present the best option, which is becoming increasingly popular and suggested by the experts, is to look at locking in for a one year fixed. You should be able to beat the variable rate and be in a good position to lock in when the future reveals an upward swing.

  3. that five year fixed looks nice…I’m a variable for the first time ever at 2.5 thanx to the dearly departed Firstline and if CIBC who took over firstline offered that rate i would prob jump….but theyre not and with the world economy still very very shaky i’m sticking with my diet pepsi for the time being…one thing about going variable is that u pay a lot more attn to sites like this and biz news….good luck

  4. @average joe
    I think you might have mistakenly twisted that…CIBC used to own Firstline but has since sold it off as they are getting out of the brokerage business.

  5. Don: CIBC had First Line up for sale in the spring but in June announced that they were going to wind it down as a lending arm as a deal with a buyer(s) could not be brokered. People with First Line mortgages will be serviced by and offered CIBC products.

  6. @Doug Boswell: Thanks for the clarification/correction :) CMT is turning out to be a website I find myself gravitating to more and more these days – apparently not enough however :)

  7. Prime rate doesn’t have to move much before the variable rate exceeds the fixed rate. Tough call, but for first time home buyers I usually lean towards a fixed with the small gap between the two rates.

  8. it was very sad watching firstline go from a great western company at one time (rennaissance financial) with top rates in the biz to slowly fading out of sight and then getting closed down by cibc…..i wanted to switch to ing and now they get bought over….will the same thing happen to ing i wonder? guess i will have to keep watching this website for updates on ing’s fate…

  9. thanx for the update…and sadly, it sounds a bit ominous…when firstline first got taken over by cibc i seem to recall a similar type statement

  10. Hello,
    I’m sure this may have been asked but here goes:
    I’m looking to obtain a mortgage…and debating whether to pick variable since the rates are staying put (for now)… or should I lock in for 10 yrs at 3.99%
    Or shiould I lock for 5 yrs at 3.19%
    Rates are “expected” to go up…but how much can they go in 10 yrs (or even in 5 yrs) with these slow interest rate hike delays … if so, is there a break even point compared to the fixed rates?
    Do you think I will be paying more in the long run going the fixed rate route ? Or am I better off keeping it variable for now, even with the potential hikes next yr ?
    Million dollar question (if a million buys anything nowadays)…

  11. A five year fixed at 2.99% is the best blend of safety and savings. I would never get a 10 year mortgage. The chances of long term rates shooting up more than 2-3% – and staying up – are small.

  12. I’m thinking of “blending and extending” my current mortgage from 3.79% for the next 1.5 years to a rate of 3.35 for 5 years. Should I do this or wait until more of my term has expired so I get a better blended rate?

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