The Details

The Bank of Canada (BoC) today announced it is maintaining its overnight lending rate (that is, the rate it charges chartered banks to borrow money) at 1/2 per cent. This non-action was widely expected, and is the 14th straight policy meeting where the BoC has declined to move what most observers consider to be Canada's most important economic lever. 

The overnight rate is a key rate for the economy, as all Canadian banks and lenders tend to generally use this rate when setting their own "prime rates". Prime rates, in turn, affect those borrowers with variable rate mortgages and home equity lines of credit. Most banks have kept their prime rate at 2.7% since the last overnight rate change on the 15th of July, 2015. 

In its accompanying statement, the BoC noted that although recent economic data has been positive, "it is too early to conclude that the economy is on a sustainable growth path". The export-led recovery it had been anticipating has not materialized, and residential consumption has been higher than predicted. Still, most analysts have pointed out that today's 'less negative' outlook seems to indicate that future rate cuts are "off the table" in the near future. 

The next scheduled Bank of Canada announcement will take place on May 24th, 2017.  

Mortgage Market Implications

Most of today's rate announcement was "baked-into" expectations, and Bond traders seemed unmoved to bid up/down bond yields in response. This means that with the outlook for fixed rates and variable rates largely unaffected, the impact of today's news is minimal. Looking into the future, the BoC is clearly painted into a corner and the prospect of rate hikes specifically to cool down housing seems to be more risky than prudent. In an accompanying press conference, BoC Governor Stephen Poloz even noted that the GTA's housing market has likely moved past fundamentals and "speculative forces could be at work", but "an interest rate of either 3 or 4% isn't going to change someone's mind on buying if folks think prices will rise 20% next year."

Our team at Mobile First Mortgage Architects continues to believe that the fixed/variable decision should be based on risk tolerance and a borrower's situation, with no current preference given to either. If you'd like to review your individual situation, or where we think rates could be headed, please feel free to contact us.