The Globe and Mail reported today that the Bank of Canada appears confident that the hot national housing market will slow down before a bubble forms. The housing market has been on the central bank and the Finance Minister’s radar over the past few months as the market just hit a record number of sales last month, as they are wary that a bubble may be forming. Jim Flaherty thought the situation was getting so serious he cautioned that the government could look at adding further mortgage market regulations to the mortgage market to try and slow down people taking on too much low interest debt and to slow down the housing market.

Today the Bank of Canada governor, Mark Carney said, “Following a period of vigorous growth, housing investment is projected to slow through 2010 as pent-up demand subsides and affordability declines”.

In the same statement the bank said they expect the Canadian economy to grow faster than expected from the 2nd quarter of this year through early 2011, and increased its forecast for the US. So it seems like the recession is behind us, and with Obama’s recent announcement that he wants to increase banking regulations so that the US can’t get into a situation again where taxpayers are held ransom by a bank that is “too big to fail”, let’s hope we don’t get into this type of a situation again.

Time will tell.

The Bank of Canada announced this morning that it is keeping the main interest rate, its target for the overnight rate at 0.25%. It also maintained its commitment to keep rates at their current levels until the end of Q2 2010, but again stated that the Bank retains considerable flexibility to change if inflation (or the housing market) gets out of hand.

In the announcement they said that the global economic recovery has started, mainly due to improving financial conditions and stronger demand domestic demand growth in many emerging-market economies. While the outlook for global growth through 2010 and 2011 is somewhat stronger than the Bank had projected in its October Monetary Policy Report, the recovery continues to depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

Canada’s economy grew in Q3 2009 and is believed to have grown even more in Q4 2009, while total CPI inflation was positive in the last quarter, the core rate of inflation has been slightly higher than expected recently. Nonetheless, the Bank believes the economy was operating 3.25% below capacity in Q4 2009.

Canada’s economy is expected to return to full capacity, with 2% inflation, in Q3 2011, while the economy will grow:

Factors driving the recovery:

Factors creating a drag on economic activity:

These factors have shifted the balance to domestic demand growth and away from net exports.

No mention was made of the potential housing bubble that everyone is talking about after CREA’s latest report citing December 2009 as the highest month of housing sales on record.

The Governor of the Bank of Canada, Mark Carney, gave a speech in Toronto today regarding the Current Issues in Household Finances.

Here are some of the highlights:

Overview

1. Feedback between financial markets and the real economy has reversed direction

2. The inventory cycle has turned and housing sectors are stabilizing.

3. Considerable fiscal expansion and monetary stimulus are supporting domestic demand.

Canadian households

Households and Financial Stability in Canada

Stress Testing the Canadian Household Sector

As you can see in the table above the Bank’s stress test involves the major interest rate (the target for the overnight rate) rising as follows:

Scenario 1

1 year (Q4 2010) = + 1.25%
2 year (Q4 2011) = + 2.85%

Scenario 2

1 year (Q4 2010) = + 1.25%
2 year (Q4 2011) = + 3.75%

Conclusion

So in closing Mark Carney believes that we’ve help up through the storm, he isn’t too worried about a “housing bubble” and re-itereated the Bank’s conditional commitment to keep current interest rates low until Summer 2010 as long as inflation stays within 2%. We are enjoying a time of extremely low interest rates and households need to plan an increase of up to 3-4% over the next couple of years to ensure they don’t get into trouble.

Bank of Canada maintains overnight rate target at 0.25% and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

They cited the following reasons for this interest rate decision:

• While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank’s projection in its October Monetary Policy Report (MPR).
• Expected demand is moving towards net aggregrate demand and away from net exports which in Q32009 resulted in weaker GDP growth
• Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.
• The drivers and profile of the Canadian economy remain the same as the Bank’s MPR report in October 2009.
• They expect the growth and recovery to continue along with inflation to return to the 2% target in Q2 2011
• If outlook remains within the desired range then the target overnight rate can be expected to remain at its current levels until Q2 2010, although the Bank “retains considerable flexibility” – this is great news for variable rate mortgage holders and shoppers looking for variable rates as this means they shouldn’t increase until next summer. Also, as members of Mortgage Rate Outlook Panel highlighted, that further discounts to variable rates are to be expected.

Main risks to inflation are:

Upside:

Downside:

The Bank of Canada announced today, October 20, 2009, that they will maintain the overnight rate target at 0.25% and said they will keep their conditional commitment to hold the current rates until the end of Q2 2010, which is great news for the long term outlook for variable mortgage rates.

Here is the full announcement:

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight interest rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent. Recent indicators point to the start of a global recovery from a deep, synchronous recession. Global economic and financial developments have been somewhat more favourable than expected at the time of the July Monetary Policy Report (MPR), although significant fragilities remain.

A recovery in economic activity is also under way in Canada. This resumption of growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence. However, heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.

Given all of these factors, the Bank now projects that, relative to the July MPR, the composition of aggregate demand will shift further towards final domestic demand and away from net exports. Growth is expected to be slightly higher in the second half of this year than previously projected but to average slightly lower over the balance of the projection period. The Canadian economy is projected to grow by 3.0 per cent in 2010 and 3.3 per cent in 2011, after contracting by 2.4 per cent this year. This is a somewhat more modest recovery in Canada than the average of previous economic cycles.

The Bank now expects that the output gap will be closed in the third quarter of 2011, one quarter later than it had projected in July. Correspondingly, inflation is also expected to return to the 2 per cent target in the third quarter of 2011, one quarter later than in July’s projection.

While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. Consistent with this conditional commitment, the Bank will continue to conduct longer-term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule: http://www.bankofcanada.ca/en/notices_fmd/2009/notice_fad201009.pdf.

In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.

Information note:

A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on Thursday, 22 October. The next scheduled date for announcing the overnight rate target is 8 December 2009.

The Bank of Canada announced this morning, September 10, 2009, that it is maintaining the overnight rate target at 1/4 per cent and says it is intent on keeping the promise to keep the main interest rate at this level until June 2010.

The Bank also announced that:

The fact that the Bank believes that GDP growth in the 2nd half of next year could be stronger than earlier thought while inflation remains under control is great news for us, and helps the notion that perhaps the worst of the economic news is behind us. Let’s hope so.

The Bank of Canada’s rate announcement is tomorrow and many of the expert expect the Federal Bank to hold their target for the overnight rate steady at 0.25%. This means variable rates should, in theory, remain steady for the next little while. However, we’ve seen some variable rates come down to as low as Prime – 0.10% for a 4 year variable closed rate, with a 45 day quick close. This is the first variable rate offered below prime that we’ve seen for months and is great news for mortgage shoppers. Could this be a sign of confidence in an economic recovery from the banks? Or simply that inter bank lending is returning to normal and banks no longer need to hoarde cash.

We’ve also seen fixed mortgage rates come down in the past week as shown below. This is mainly attributable to the fact that the Government of Canada 5 year bond price has increased over the past week by 2.80%, reducing the yield, and enabling banks to drop 5 year rates. After speaking to a few brokers in the last day or so, they believe rates will come off a bit more in the near future. Again, it’s difficult to time these things, and if you do need a mortgage soon, it’s probably best to look into it now and get pre-approved, rather than trying to time the absolute bottom of the market.

You can keep track of the latest mortgage rates here, or through our Ratewatch service, which will send you a quick update whenever the best mortgage rates on the site change.

We’ll look out for the Bank of Canada announcement tomorrow and post the results as soon as we get them.

The Bank of Canada (BoC) announced this morning that it is keeping its target overnight rate, the main influential interest rate in Canada, at 1/4%. They also said that they are commited to trying to hold this rate steady until the end of Q2 2010 or July 2010.

In the release, the federal bank, also said that there are signs that economic activity around the world is starting to expand due to the monetary and fiscal policy put in place by international governments, however, this activity has only happened recently and additional policies are still needed to sustain this growth.

In Canada, demand is increasing with higher commodity prices and increased business and consumer confidence, although, the higher Canadian dollar and the automotive industries restructuring is moderating growth. The BoC believes that economic growth will be as follows:

• 2009: -2.3%
• 2010: 3.0%
• 2011: 3.5%

And the country will reach production capacity in the middle of 2011.

The Bank of Canada announced today that they’re holding interest rates steady with their target for the overnight rate at 0.25%.

The central bank reported that all information received since their last rate announcement in April is consistent with their outlook for economic performance and inflation, therefore, no action was needed. They expect the global and Canadian recovery to be more “muted” than usual, and continue to believe that the target overnight rate will stay at it’s current level until the second quarter of 2010.

In terms of mortgages, that means that variable mortgage rates should not increase significantly until next year, as these are influenced by mortgage lenders cost of borrowing. This is very different to fixed mortgage rates, which are based on long term bond yields, and have increased by an average of 0.20% this week.

As a result, it may be time to lock in and get pre-approved if you’re interested in a fixed mortgage rate. You can go compare mortgage rates now to see how things have changed this week.

The Bank of Canada lowered its target for the overnight rate by 0.25% today to 0.25%, which they believe to be the effective lower bound for that rate – meaning there is no where else to go as it can’t go any lower.

The central bank cited the fact that there is still uncertainty in the global economy and that the international recession has gotten worse since the January policy update. Credit conditions have worsened and the steps to stimulate the financial system are taking longer than expected to have any effect. As a result, the Canadian recession will be deeper than first expected (-3% forecasted growth in ‘09) with recovery in 2010 at 2.5% growth and a further 4.7% growth in 2011. This implies a more rounded “u-shaped” recovery rather than a sharp “v-shaped” recovery with growth bouncing back very quickly after a recession.

The statement released this morning also included very unusual, long-term guidance as the target for the overnight rate hits it’s lower limit, they said:

“it is appropriate to provide more explicit guidance than is usual regarding its future path so as to influence rates at longer maturities. Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.”

So, the long-term outlook for interest rates will be very low, if inflation stays in check, until at least April 2010! This additional guidance helps to provide additional stability as it takes the guesswork out of when rates will increase from historic lows, and is great news for home buyers and mortgage shoppers. We’ll see if the banks follow suit.

Today’s decision means that the Bank of Canada has lowered interest rates by 4.25% since December 2007.