The Bank of Canada met this week to make a decision on whether to lower rates or keep the key lending rate where it is. They decided to keep it where it is for now. Their key lending rate is .50% Banks and mortgage lenders are usually 2% above this but the last two times the B of C lowered the rate they did not match it; they only dropped it by a portion of each .25% drop.
Another article in the Globe & Mail this week said we could see low interest rates for the remainder of our lives. There were many reasons for this; too many to mention here but below is an article from MortgageBrokerNews.ca, which gives the reasons why the B of C decided to keep rates at the current low:
Bank of Canada Rate Decision by Penelope Graham for MortgageBrokerNews.ca
Pressures from global volatility and slow growth in the wake of the Brexit haven’t deterred the Bank of Canada from its current monetary policy; the central bank has opted to maintain the overnight lending rate at 0.5%. The Bank Rate is correspondingly 0.75%, and the Deposit Rate is .25%.
While it was widely expected that the B of C would hold status quo on rates, there was some speculation that a rate cut was in order due to Alberta’s massive forest fires and the resulting impact on oil production. Flames forced many oil sands projects to shutter, cutting production by an estimated 40% - a gap of 1 – 2 million barrels per day – and costing GDP and estimated $985 million.
“In Canada, the quarterly pattern of growth has been uneven. Real GDP grew by 2.4% in the first quarter but is estimated to have contracted by 1% in the second quarter, pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires,” states the B of C’s release. “A pick-up to 3 ½% is expected in the third quarter as oil production resumes and rebuilding begins in Fort McMurray.”
While the B of C’s projections remain close to those presented in April’s Monetary Policy Report, it is reporting a revised forecast due to weaker business investment outlook, and a lower profile for exports as a result of weaker US investment spending.
Real GDP is expected to grow by 1.3% in 2016, 2.2% in 2017, and 2.1% in 2018, as the Liberals make good on their promise to amp up infrastructure spending and investment.
“The Bank projects above-potential growth from the second half of 2016, lifted by rising US demand and supported by accommodative monetary and financial conditions,” it states. “Federal infrastructure spending and other fiscal measures announced in the March budget will also contribute to growth.”
The B of C adds that consumer spending will also get a boost from the Canada Child Benefit.
While the market volatility following the Brexit has led other nations’ central banks to loosen monetary policy, Poloz has stated that Canada’s lenders are resilient enough to withstand any fall out. However, it emphasizes hot housing markets are a main contributor to downside risks facing the economy.
“Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast. At the same time, financial vulnerabilities are elevated and rising, particularly in the greater Vancouver and Toronto areas. The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at ½%.”
Tony Marchigiano 310-328 West Hastings Street
Mortgage Broker Vancouver, BC
cell: 604 505 7109
fax: 604 909 4666