Thursday, April 17, 2014

Bank of Canada: no change on key lending rate

As per the rate announcement yesterday, the Bank of Canada decided to leave its key interest rate unchanged. The Bank announced it would maintain its target for the overnight rate at 1%--a decision that spells good news for variable rate holders.

The primary reason for the decisions was low inflation—something that is expected to continue for the remainder of 2014. While consumer energy prices and a low Canadian dollar are predicted to put upward pressure on inflation in coming quarters, it likely won’t exceed the 2% target.

On the global front, unusual weather caused slower-than-expected US growth, but the Bank expects the overall recovery to remain on track. Europe’s recovery, while progressing, is still subject to low inflation—and the Russia-Ukraine situation could cause issues down the road. Emerging economies, including China, are growing at a solid rate, but financial vulnerabilities could potentially pose a problem as well.

Overall, the Bank expects global growth to increase to 3.3% in 2014, while Canada’s real GDP growth is expected to average about 2.5%. The Bank is also predicting a soft landing for the housing market as debt-to-income ratios stabilize. Household imbalances are still quite high, though, and wouldn’t be able to weather a deterioration in economic conditions. So hopefully that means interest rates remain low for some time.

The next policy announcement is scheduled for June 4, 2014. In the meantime, if you have any questions regarding your variable rate mortgage—or any mortgage question—please don’t hesitate to call.

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