Today marks another Bank of Canada announcement with no change, as the Overnight Lending Rate remains at one per cent. Though this hardly comes as a surprise – the rate has not changed since September 2010, and is not expected to rise until Q3 this year – the announcement came with news that the economy has not performed as well as initially forecasted. The Central bank says the slowdown in Canada’s economy was more pronounced than expected in the last half of 2012.
Lower Expectations For Growth
There are several reasons why interest rates aren’t expected to rise in the near future. First, as Bank of Canada Governor Mark Carney leaves his position in July to head up the Bank of England, he’s noted that a rate hike won’t be likely happen before his departure, forecasting rates will remain this low until 2014.
The second is subdued economic growth. According to Carney, the Bank now expects the economy to reach full capacity in the second half of 2014, later than anticipated. In October the Central bank had indicated it might raise rates in 2013, but not until much later in the year. Inflation has also been slow, another reason to leave rates where they are for fear of risk deflation. Currently, inflation is at around one per cent; two per cent is the level that indicates healthy economic conditions.
Global Issues Make Their Mark
It seems like the EU money problems are becoming systematic, and there’s no remedy in sight. This leaves Canada and the rest of the world moving cautiously when making any decision that could affect our European counterparts. In Canada, a higher Loonie is also making it hard for business to do trade with their international partners. The news of a potential extended period of lower rates in Canada did drag the dollar down, but not to levels that are attractive for business growth.
The Message On Household Debt is Sticking
Carney has been warning Canadians of their toxic household debt levels for some time now – and it appears they’re beginning to take his words to heart. However, in this economic environment, fiscally responsibility is a double-edged sword. Carney expects debt levels in Canada to remain stable, which is a good thing. But, this means that Canadians who are in deep debt will be using their money to pay their creditors and not shop in Canadian stores, therefore reducing economic stimulation.
Rising Concerns in Ottawa
Prime Minister Stephen Harper has also chimed in with his concerns, stating slow growth will have a negative impact on employment in the long term. He told reporters, “There has been a general slowing of the global economy over the past half year. So it is obviously a concern to us.”
What Can Homeowners Do?
If you have a mortgage, continue to pay down debt and take advantage of this extended lower interest rate environment. Everyone is surprised that rates have been this low for this long and this should be seen as bonus for getting your house paid off faster. If you’re buying a new house today looking at a 10-year fixed is a good option for those wanting to lock in today’s prices for the long term. Low rates may be bad for an economy and for investments but they can be great for homeowners who are diligently paying off their mortgage and other debts.