On December 3rd, the Bank of Canada announced that it would be keeping the status quo on its key interest rate, the overnight rate.
Without good reason, the Bank of Canada is not likely to raise its key interest rate – meaning home-owners with variable rate mortgages will continue to enjoy historically low interest rates. While issues such as inflation may be cause for concern, a rate increase is not likely to occur without a period of sustained economic stability and with Canadian house-hold debt at such a significant level.
However; options certainly exist for the home-owner – fixed rates can be locked in and mortgages can be set-up to carry both fixed and variable portions. Options exist for both the home-owner with an existing mortgage, and the prospective home-owner looking to purchase a home today. An experienced, knowledgeable mortgage professional will be able to help you hedge your risk, and pull your chips off of the table if need be.
The Bank of Canada overnight lending rate is an important number for Canadians, especially those carrying variable rate mortgages, as banks’ and other mortgage lenders’ prime rates are typically tied to this key interest rate.
The Organization for Economic Co-operation and Development, or OECD, earlier this week suggested that the Bank of Canada would be raising interest rates earlier than expected – as early as May 2015; however, these are the same predictions being issued in 2011, 2012, 2013…and so on.
The Bank of Canada’s announcement on December 3rd expressed optimism regarding Canada’s exports, based upon a strengthened U.S economy and a ‘broadening recovery’ for Canada’s economy as a whole. On the other hand, growth in economies globally continues to disappoint, while inflation at home remains a concern for policy makers. The falling price of Oil as well as the amount of household debt Canadians carry continue to concern policy makers as well.
The decision to keep interest rates at the status quo marks the longest period without a movement in rates in Canada since World War II; the last change in the overnight lending rate being in September 2010.
The full Bank of Canada press release is available on the www.bankofcanada.ca
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