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Oct 24 Bank of Canada to Keep 2% Inflation Target

Posted by: AdminS

The Bank of Canada has confirmed that it plans to keep a 2 percent inflation target over the next five years.

Stephen Poloz, the Bank of Canada Governor, have decided to renew their strategy of targeting a 2% inflation rate in Canada over the next five years.

On Monday, October 24th, the Bank of Canada announced a press release specifying its decision to continue a policy of targeting particular rates of inflation. The central bank has made inflationary targets a part of fiscal policy over the past 25 years and will continue doing so for at lease the next five.

The central bank has also made changes to the way it determines its inflation calculations and decisions.

Three new metrics will be used to determine inflation: CPI-median, CPI-common & CPI-trim. Traditionally the metric used was core inflation; however, critics are quick to point out that this metric removes essential goods such as the price of energy and foods due to their tendency to fluctuate in price more drastically.

The three new CPI metrics look to provide a more balanced and nuanced measurement of inflationary impacts on the economy and the average Canadian consumer.

The decision to keep the target rate of inflation at 2 percent sends a strong message; expect don’t expect the bank to raise rates anytime soon.

The Bank of Canada uses the measure inflation as a central factor on what to do with their overnight lending rate, the key rate Canada’s biggest banks use to help determine their ‘prime’ rates. With the decision to keep the target rate of inflation at 2 percent for the next five years, the central bank is sending the signal that it’s business as usual when it comes to their expectations for the economy and interest rates.

Barring any significantly unexpected events, such as a massive expansion of the Canadian economy or perhaps a return to $100+ oil, inflation should easily settle in the 2 percent range – giving the Bank of Canada enough plausibility to maintain the status-quo should they choose to. In fact, the Bank of Canada could even be headed for another rate decrease should they deem it necessary.

What does this mean to the average Canadian?

If you’re carrying a variable rate mortgage, the Bank of Canada is signalling that you’re not likely to see any increases in your mortgage rate. The variable rate mortgage continues to be an excellent alternative to fixed rate products in providing flexibility to Canadians looking to manage their cash-flow, and to homeowners set on paying down their mortgage as fast as possible.

Although the difference between the interest rates on variable rate mortgages and fixed rate mortgages have considerably narrowed in today’s marketplace; the variable rate product still offers some advantages to clients willing to make the commitment.

If you have questions about your mortgage or whether or not a variable rate mortgage is right for you, fill out the contact form at the top of the page and speak to a MonsterMortgage.ca Mortgage Expert today!

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