Unsurprisingly, the Bank of Canada (BoC) has decided to keep their key lending rate, the overnight lending rate, at 0.5%. The overnight lending rate directly influences the banks’ ‘Prime Rate’ which determines the interest rates for variable rate mortgages, various savings & investing products and more.
The Bank of Canada cited lower than expected global economic growth in addition to a weaker than expected performance from the United States economy. That being said, the Bank of Canada does expect the American economy to continue to support high employment rates and a healthy amount of consumption in goods and services throughout the rest of the year. You can read more about the Bank of Canada’s prognostications in their quarterly Monetary Policy Report (MPR) – the next Monetary Policy report is expected to be released on October 19th in unison with the BoC’s next interest rate decision.
While the Canadian economy experienced some difficulties throughout this last quarter, primarily attributable to the Alberta wildfires and a greater than expected decrease in exported goods; the Bank of Canada suggests that a rebound is in store for the economy throughout the remainder of the year. The rebuilding efforts in Alberta, an expected recovery in energy prices and federal infrastructure investments are expected to have a positive effect and help carry the Canadian economy to a stronger 3rd and 4th quarter.
Inflation and core inflation were indicated to have fallen within the 2 percent range – which is the Bank of Canada’s targeted benchmark.
The Bank of Canada continues to imply that interest rates will stay at the status quo for the foreseeable future. Readers of the BoC’s Monetary Policy Reports can deduce that while global economic growth remains relatively stable, there is little incentive for the Bank of Canada to make any changes to the overnight lending rate, barring some unforeseen economic boon.
If you’re holding a variable rate mortgage, you can continue to remain secure with the knowledge that your rate won’t be moving up anytime soon. In fact, if you took the variable rate mortgage at the behest of your mortgage expert, you can go ahead and give them a pat on the back too! With variable mortgage rates at such historically low levels, now is an excellent time to really work on paying down your debts and using your mortgage prepayment privileges.
This is an excellent question – and one that is a little less straightforward than it used to be just a year ago. The ‘spreads’ between the variable and fixed rate mortgages have narrowed significantly, and the difference between a 5-year fixed rate mortgage and a 5-year variable rate mortgage is as low as 0.20%. This makes the decision between a fixed or variable rate product an interesting one. If you’re having trouble deciding between the two, speak to a trusted mortgage expert and explain to them your priorities, your goals for your mortgage and how sensitive you might be to a change in rates. From there, you can make an educated decision on whether or not the difference in 0.20% in interest is worth it – for you. Rest assured however, whether you choose to go variable or fixed on your next mortgage, you’re getting a historically low rate – a “win-win” situation if there ever was one!
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