What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BoC) makes a scheduled announcement about their benchmark lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financial lenders. For more information, take a look at our blog post breaking down four of the most frequently asked questions regarding the BoC.
Were there any Changes to the Interest Rate?
The overnight lending rate set by the Bank of Canada was expectedly held steady today at 0.25 percent. Current projections for future rate changes are now anticipating no change in the rates until at least the second quarter of 2022, as opposed to the second half of 2022 as previously projected. As economic recovery from COVID-19 continues, The Bank has decided to end its quantitative easing (QE) program and move into the reinvestment phase. This includes purchasing Government of Canada bonds solely to replace maturing bonds.
What Information did the Bank Share about the Economy?
- Although COVID-19 variants still pose a real threat to health and economic activity, economies around the globe are continuing to recover. Economic growth in Canada has resumed after the pause in the second quarter.
- Global GDP is now projected by the Bank to increase by 6.5 percent in 2021 which is less than what was predicted in the July Monetary Policy Report (MPR). The bank also expects the global GDP to increase by 4.25 percent in 2022 and 3.5 percent in 2023.
- Employment has seen strong gains in the recent months in sectors that were most affected by lockdowns; however it is still taking time for workers to find the right jobs and for employers to hire people with the right skills. Therefore, this is contributing to continued labour shortages in certain sectors.
- The Bank is now expecting 5 percent growth in the Canadian economy this year, followed by a 4.25 percent increase in 2022 and 3.75 percent in 2023.
- As the US economy also continues its recovery, exports are expected to increase. Increased consumption and business investment will assist in an increase in demand.
- Activity in the housing market has moderated but is still expected to remain elevated.
- The impact of supply side shortages of manufacturing inputs, bottlenecks, and labour market issues are not easy to quantify. However the output gap is likely to be narrower than what was predicted in July.
- High energy prices and continued supply bottlenecks have caused inflation rates to increase. Although the increase in CPI inflation was projected in July, these forces are now recognized as being more powerful than expected. The Bank now predicts CPI inflation to be higher than normal as we move into 2022, and return back to its target of 2 percent by late 2022.
How does this Impact Me?
- Mortgage interest rates for variable mortgages are likely to remain unchanged as a result of this announcement.
- We are seeing more movement on the 5-year bond yields which drive fixed rates up or down. We have seen a resultant increase in fixed rates since late September.
- Record-high gas prices are expected to remain in the short-term, as high demand for crude oil has driven up prices.
- Activity in the real estate markets in both Edmonton and Calgary has remained robust, despite the pandemic. Overall increases in year-over-year residential prices have been recorded in both cities.
- Bill 49, the Labour Mobility Act, was proposed in the Alberta legislature on Monday, October 25. This bill is aimed at addressing the labour shortages in the province, and will regulate the processing time to approve the credentials of skilled workers coming from other provinces. If passed, regulatory bodies will have 20 working days to make a decision and an additional 10 days to inform the applicant.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will be published on December 8, 2021 with no change expected at that time. The Bank of Canada will hold the rate at 0.25 percent until the economic slack is absorbed which is projected to be in the middle quarters of 2022. The Bank of Canada continues to closely monitor the measures necessary to sustainably achieve the 2 percent inflation target, and will adjust monetary support as required.
How Can I Learn More?
For up-to-date information on interest rates and other important mortgage news that may impact you, you can follow us on Facebook, Instagram or LinkedIn. Questions about today’s announcement? Leave a comment below or contact our office and speak to one of our Mortgage Brokers today!