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The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank reiterated what it calls "extraordinary forward guidance" in committing to leaving the overnight rate at 0.25 per cent until slack in the economy is absorbed and inflation sustainably returns to its 2 per cent target. The  Bank projects that will not occur until 2023. The Bank is also continuing its quantitative easing (QE) program, purchasing at least $4 billion of Government of Canada bonds per week. In the statement accompanying the decision, the Bank noted that the economic recovery has been interrupted by the second wave of COVID-19, but the arrival of effective vaccines has boosted the medium-term outlook for economic growth.  The Bank expects the Canadian economy will grow 4 per cent in 2021 and 5 per cent in 2022.

The restrictions in place to mitigate the impact of the second wave of COVID-19 mean that the economy is likely going to get off to a slow start in 2021.  However, as vaccinations accelerate in coming months, the Canadian economic recovery will gain steam in the second half of 2021. Depending on the strength of the recovery, we may see the Bank taper its purchases of government bonds in 2022, which could put moderate upward pressure on 5-year fixed mortgage rates. However, that still means the current extremely low interest rate environment will be around for quite some time.
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The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank is also continuing its quantitative easing (QE) program, purchasing at least $4 billion of Government of Canada bonds per week and re-affirmed its forward guidance on future interests moves, committing to holding the policy rate at 0.25 per cent until slack in the economy is absorbed and inflation is sustainably trending at 2 per cent.   In the statement accompanying the decision, the Bank noted that the recovery underway will be choppy due to rising cases of COVID-19 and will continue to require extraordinary monetary support from the bank.

Current slack in the economy, along with low energy prices, is holding Canadian inflation well below its target of 2 per cent. Total CPI inflation is trending under 1 per cent while the Bank of Canada’s measures of “core” inflation remain below target despite the massive expansion of the Bank’s balance sheet necessary to facilitate its quantitative easing program. With the arrival of viable vaccines, we may see the Canadian economic recovery materially accelerate in the second half of 2021. If that occurs, the first stage of tighter monetary policy from the Bank will be how and when it decides to taper purchases of government bonds over the next year. As it does,  we may start to see a divergence in variable and fixed rates by early summer as bond yields rise and fixed mortgage rates move marginally higher.
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The Bank of Canada held its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank is also continuing its quantitative easing (QE) program, though re-calibrated to target longer-term bonds and slightly scaled back from purchasing $5 billion per week in Government of Canada bonds to $4 billion per week. The Bank also reiterated forward guidance on future interests moves, committing to holding the policy rate at 0.25 per cent until slack in the economy is absorbed and inflation is sustainably trending at 2 per cent.   In the statement accompanying the decision, the Bank noted that the Canadian economy is recovering, though at a highly uneven rate, with the pandemic particularly affecting low-income workers.  Overall, the Bank expects a decline in Canadian real GDP of 5.5 per cent this year, before growing 4 per cent next year. Inflation is expected to remain below its 2 per cent target through 2022.

With the Bank committing to holding its policy rate at 0.25 per cent until slack in the economy is absorbed, and continuing its quantitative easing program of asset purchases, Canadian mortgage rates should remain at current historical lows for quite some time. Given the Bank's forward guidance on interest rates and its projection for inflation, those low rates are anticipated to remain in place until 2023, providing a significant boost to an already strong BC housing market.
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The Bank of Canada lowered its overnight rate by 50 basis points this morning to 1.25 per cent.  This move is part of a coordinated action by global central banks to guard against the negative consequences of the Coronavirus outbreak.  In its statement, the Bank noted that although the Canadian economy is operating near potential and inflation is at its 2 per cent target, the Coronavirus is a material and negative shock to the Canadian and global outlook.

Economic growth in Canada slowed sharply to end 2019 and supply chain disruptions due to both Coronavirus and interrupted rail service are expected to slow growth further in the first quarter of this year.

Canadian bond yields have  declined significantly with 5-year bond yields falling below 1% for the first time since 2017.  Both variable and 5-year fixed qualifying mortgage rates will likely follow bond yields lower,  though elevated risk spreads may delay banks and other lenders in lowering mortgage rates in the immediate term.

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The Bank of Canada held its overnight rate at 1.75 per cent this morning. In the statement accompanying the decision the Bank noted that while economic growth slowed in the fourth quarter, the global economy appears to be stabilizing and export demand and business investment should pick-up over the next year.  In addition, strong population and income growth will provide a boost to consumer spending and the housing market continues to recover.  The Bank projects that inflation will stay around its 2 per cent target over the next two years.

Although the Canadian economy appears to have limped to the finish line in 2019, pressure on the Bank of Canada to lower rates may actually be easing as risks to the Global economy fade. Fear surrounding the outlook for the United States has subsided due to rate-cutting by the US Federal Reserve and guarded optimism around US-China trade relations.  With external risks to the outlook diminished, the Bank will likely remain focused on restraining the growth of household debt. Therefore, it is unlikely the Bank will opt to lower its policy rate this year, absent a significant deterioration in the outlook for Canadian growth and inflation.
Information provided by BCREA. 

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The Bank of Canada held its overnight rate at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that there is evidence that the global economy is stabilizing and that US recession concerns are waning, though trade conflicts remain the biggest threat to the Canadian economy.  The Bank expects modest growth in 2020 and for inflation to closely track its 2 per cent target.

With many central banks around the world lowering their policy rates,  why is the Bank of Canada holding firm? Simply, the Bank judges the potential of lower rates igniting a further accumulation of household debt as a greater risk to the Canadian economy than the risk from deteriorating global economic conditions.  Canadian policymakers have committed to bending the curve on the Canadian household debt-to-income ratio, through a combination of higher interest rates and stricter mortgage policy.


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The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision the Bank noted that although ongoing global trade tensions are having a negative effect on the global economy, economic growth in Canada is improving. A decline in mortgage rates is helping to stabilize housing markets still challenged by the mortgage stress test and a healthy labour market is supporting consumption growth.  The bank judges the current level of its policy rate appropriate but emphasized that it will be closely monitoring developments in the energy sector and the impact of trade conflicts.

The Canadian economy is showing signs of recovery after two consecutive quarters of sub-1 per cent growth. We are currently tracking second quarter real GDP growth at close to 3 per cent while Canadian inflation has recently bumped up above the Bank's 2 per cent target. As long as those trends hold, a rate cut by the Bank of Canada is looking less and less likely, though there may be some pressure to follow the Federal Reserve should it choose to ease monetary policy.

“Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.
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The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that the slowdown over the past two quarters was temporary and growth should pick up beginning in the second quarter of 2019. On inflation, the Bank expects that both total CPI and core inflation will remain near its 2 per cent target in coming months. Overall, the Bank judges its current level of monetary accommodation as appropriate.

Slow growth in the first half of 2019, the result of reductions in Alberta oil production, global trade uncertainty and the continued impacts of the B20 stress test, has likely pushed out any possibility of further tightening by the Bank of Canada into next year at the earliest. In fact, if financial markets are to be believed, the Bank may have missed its chance to return its policy rate to its preferred or "neutral" level and the next move may even be a rate cut. Canadian mortgage rates have responded strongly to revised market expectations for Canadian monetary policy, with 5-year mortgage rates falling back to 2017 levels. Those lower rates are already providing a boost to sales in May and should continue to do so through the summer. 
 
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
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The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that ongoing uncertainty related to global trade conflicts is undermining business sentiment and contributing to a slowdown in growth across many countries. That circumstance has led to central banks, including the Bank of Canada, slowing the pace of interest rate normalization. The Bank expects global uncertainty, along with weaker-than-anticipated housing and consumption spending, to be a drag on economic growth through the first half of 2019. Overall, the Bank judges that accommodative  monetary policy (meaning low interest rates) continue to be warranted.

The Canadian economy is showing some signs of improving in the first quarter after registering less than 0.5 per cent growth in the final quarter of 2018.  However, the drag from lower Alberta oil production and the ongoing negative impact of the mortgage stress test means that Canadian economic growth will likely be modest, in a range of 1-1.5 per cent this year. That places any further tightening this year by the Bank of Canada in doubt, though a recent uptick in inflation has quieted talk of a rate cut.  As we forecast a month ago, 5-year fixed rates have fallen further with most Banks now offering borrowers a 3.24 per cent rate, a level we expect to prevail for much of 2019.

“Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.
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The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that the outlook for the Canadian economy is moderating due to  falling oil prices and mandatory production cuts in Alberta and a slowdown in global demand due to US-China trade tensions. As a result, the Bank has trimmed its forecast for Canadian economic growth in 2019 from 2.1 per cent to 1.7 per cent.  Total inflation is being dragged lower by falling gasoline prices, though core inflation remains near the Bank's 2 per cent target.

While the direction of future monetary policy remains tilted toward higher interest rates, our baseline forecast is for a single rate hike as the most likely outcome for 2019. With a housing market battered by the stress test and signs of slowing growth elsewhere in the economy, it will be difficult for the Bank to accelerate monetary tightening beyond a gradual pace.  A less hawkish Bank of Canada, along with a steep fall in Canadian bond yields, should translate to mortgage rates flattening out or even moving slightly lower in 2019. 

“Copyright British Columbia Real Estate Association. Reprinted with permission.” 
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Bank of Canada Interest Rate Decision - December 5, 2018

The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that growth in the Canadian economy will be challenged by Alberta's cutbacks in oil production but investment outside of the energy sector is expected to strengthen.  On inflation, the Bank judges that prices in the economy are evolving in a way consistent with an economy operating at full capacity.  Given the Bank of Canada judges the economy is currently acting at full capacity and inflation is running slightly above its 2 per cent target, its bias remains tilted towards “normalizing” its policy rate back to its estimated neutral level of between 2.5 and 3.5 per cent.  With that bias in place, the timing of rate increases, rather than their direction, is the more pertinent issue.

However, the deep discount for Canadian Western Select oil, and the ramifications of limited Alberta oil production, is one reason to be skeptical that the Bank will accomplish its objective to return to a neutral 3 per cent rate over the medium term. However, other cracks in the economy are starting to appear as well, including the highly publicized closing to GM’s Oshawa plant which will have a material impact on growth in Ontario.  Those factors, along with a slowing housing market across Canada and a potentially sharp slowdown in US economic growth next year, may give the Bank pause.  For those reasons, our baseline forecast is that the Bank will only be able to bring its overnight rate to 2.5 per cent during this tightening cycle.

Copyright British Columbia Real Estate Association. Reprinted with permission.”

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The Bank of Canada raised its target for the overnight rate by 25 basis points to 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is expected to average growth of 2 per cent over the second half of 2018 before slowing to 1.9 per cent next year.  The renegotiation of NAFTA is expected to lower uncertainty and boost business investment and exports while households spending and the housing market are stabilizing after the implementation of the B20 mortgage stress test. Inflation is expected to remain close to 2 per cent over the Bank's two year projection horizon.
   
The resolution of NAFTA negotiations earlier in the fall paved the way for the Bank of Canada to resume its rate tightening this morning.  While inflation data came in slightly soft in September, the Canadian economy is still operating above its long-run trend which should keep inflation near the Bank's 2 per cent target. The Bank will meet one final time in 2018 at its December meeting, at which we expect policymakers will maintain the target rate at is current level before raising the target rate to 2 per cent in January 2019.  As the target rate continues on its path higher, Canadian mortgage rates will continue to rise, ultimately resulting in a 6 per cent qualifying rate by the end of 2019.

“Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.

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