No Rate Increase Yet Again!
Bank of Canada keeps the overnight rate at 5%. Which for most lenders Prime rate will remain at 7.20%.
What is the Bank of Canada Overnight Rate?
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.
The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.
Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.
Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.
Should I lock into a Fixed Rate now?
Historically variable rates have shown to save you more money in the long run.
A few things you should consider before locking into a Fixed rate is:
Are you planning to sell your home in the near future? Then we would highly recommend you stay in your variable rate mortgage.
Can your budget handle a payment increase if rates go up?
Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.
If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.
Whats to come??
Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.
Against the backdrop of a decelerating economy and growing calls for less restrictive monetary policy, the Bank of Canada made its final scheduled interest rate decision of the year today.
That decision – to keep its overnight policy interest rate at 5.00% – was broadly expected. What was not entirely expected (or welcome) was the Bank’s statement that it is “still concerned” about risks to the outlook for inflation and “remains prepared to raise” its policy rate “further” if needed.
We capture the Bank’s observations in the summary below.
Inflation facts and housing market commentary
A slowdown in the Canadian economy is reducing inflationary pressures in a “broadening range” of goods and services prices
Combined with a drop in gasoline prices, this contributed to easing of CPI inflation to 3.1% in October
However, “shelter price inflation” picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs
In recent months, the Bank’s preferred measures of core inflation have been around 3.5-4%, with the October data coming in towards the lower end of this range
Wages are still rising by 4-5%
Canadian economic performance
Economic growth “stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter
Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year
Exports and inventory adjustment “subtracted” from GDP growth in the third quarter, while government spending and new home construction provided a boost
The labour market continues to ease: job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly
Overall, these data and indicators for the fourth quarter suggest the economy is “no longer in excess demand”
Global economic performance and outlook
The global economy continues to slow and inflation has eased further
In the United States, growth has been stronger than expected, led by robust consumer spending, but is “likely to weaken in the months ahead” as past policy rate increases work their way through the economy
Growth in the euro area has weakened and, combined with lower energy prices, has reduced inflationary pressures
Oil prices are about $10-per-barrel lower than was assumed in the Bank’s October Monetary Policy Report
Financial conditions have also eased, with long-term interest rates “unwinding” some of the sharp increases seen earlier in the autumn. The US dollar has weakened against most currencies, including Canada’s
Summary and Outlook
Despite (or in the Bank’s view because of) further signs that monetary policy is moderating spending and relieving price pressures, it decided to hold its policy rate at 5% and to continue to normalize its balance sheet.
The Bank also noted that it remains “concerned” about risks to the outlook for inflation and remains prepared to raise its policy rate further if needed. The Bank’s Governing Council also indicated it wants to see further and sustained easing in core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and “corporate pricing behaviour.”
Once again, the Bank repeated its mantra that it “remains resolute in its commitment to restoring price stability for Canadians.” As a result, we will have to wait until next year for any sign of rate relief.
Next Schedule Interest Rate announcements will be January 24, 2024