Chad Moore Calgary Mortgage Broker

The Bank of Canada held it’s overnight lending rate firm at 0.25%. Here is the Bank’s policy announcement.

When Are Announcements And How Does That Effect Mortgages?

Eight times per year, unless otherwise warranted, the Bank of Canada (BoC) makes an interest rate announcement. This interest rate is referred to as Canada’s overnight lending rate or key interest rate etc.

Movements of this key lending rate trickle into the retail Banking level and move the Prime lending rate at Canada’s retail banks (big branded banks and other financial institutions).

When the Prime lending rate moves, so do variable rate Mortgages!

Pandemic 2020

The Bank of Canada yanked Canada’s key lending rate down 1.50% and rolled out massive monetary policy to place a floor under Canada’s economy!! This is a good reminder, things can change fast!

Massive policy responses in advanced economies have helped to replace lost income and cushion the effect of economic shutdowns.

Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income helping to lay the foundation for economic recovery.

Economic Outlook …Tentative.

Policy markers, and certainly the stock market, are starting to see through the current economic headwinds and anticipate a recovery, albeit a wide range of outcomes are all still possibilities.

While the outlook for the second half of 2020 and beyond remains heavily clouded, the Bank expects the economy to resume growth in the third quarter.

The Bank of Canada’s mandate is to maintain Canada’s inflation between 1-3% with the economy functioning near full capacity. One main data point our central bankers watch is the Consumer Price Index (CPI). This data point measures the change in price of a basket of goods in Canada. This is inflation.

CPI inflation has decreased to near zero, as anticipated in the April Monetary Policy Report (MPR), mainly due to lower prices for gasoline. The Bank expects temporary factors to keep CPI inflation below the target band (1-3%) in the near term.

This quote is saying Canada’s inflation is down primarily due to lower gasoline prices. Core measures of inflation, which strip out volatile inputs like gasoline and airline ticket prices, are down but relatively stable.

Lower For Longer? Why Not?

Canada’s central bankers have said, if further policy measures are required (they have a deep and wide ranging policy tool chest) they will act. That simply might turn out to be a a slow reduction of current monetary stimulus and holding rates low for the foreseeable future??

Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.

The interest rate outlook is low for longer, until a more pronounced and certain path to economic recovery is in place.

Do you have questions about going with a fixed or variable Mortgage interest rate? What about switch/transferring your Mortgage? Reach out to chat more so you have good information to make educated decisions.

Talk soon,
Chad Moore