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ALERT: Bank of Canada Makes Rate Decision

March 9, 2016

On March 9th, 2016, the Bank of Canada released their latest decision regarding their overnight lending rate.

The Bank of Canada (BoC) has announced that it intends to maintain the overnight lending rate at 0.50%. If you recall in previous MonsterMortgage.ca articles – the Bank of Canada has not increased the overnight lending rate since September 2010 – allowing variable rate mortgage holders to continue to celebrate historically low rates.

The Bank of Canada typically addresses a number of factors to determine and explain their decisions: inflation, the Canadian economy and global economies as well as the health of the currency.

In recent weeks, the energy prices (in particular, the price of oil) have rebounded and the Canadian dollar has started to appreciate from previous lows. The recent improvements in energy prices and the Canadian currency have put the Loonie and the price of oil at the average levels the Bank of Canada predicted in January’s Monetary Policy Report.

The Bank of Canada also commented that the economy, globally, appears to be growing at a rate the BoC expected. Admittedly, there are risks that may weaken the economy; however, the BoC expects growth to continue in both 2016 and 2017. The United States economy continues to grow but growth in Canada is challenged by low energy prices as the country looks to other economic sectors other than oil.

Another matter of importance to the BoC is inflation. While some prognosticators have even called for deflation (the opposite of inflation), the rate of inflation continues to be within the Bank of Canada’s target range. The BoC indicated that although total CPI inflation had reached 2% recently – these pressures will start to unwind as the Canadian dollar rebounds and excess supply (versus demand) will keep inflation in check.

Ultimately, the Bank of Canada believes that given all the strengths and weaknesses that they’ve taken into account, their current policy to keep the overnight lending rate at 0.5% is reasonable.

Variable rate mortgage holders continue to rejoice.