Bank of Canada Announcement: Inflation And Debt Still Top Concerns

Updates from today's Bank of Canada Announcement

In its latest announcement, the Bank of Canada has maintained its overnight lending rate, which sets the cost of borrowing in Canada, at one per cent. The lack of movement isn’t much of a shocker – the rate hasn’t budged since September 2010, and there’s little doubt the Bank is sticking to its commitment to seeing stronger economic growth before hiking interest rates.

The real news is written between the lines of the overall statement, where the BoC reveals its largest concerns for economic threats and the overall sentiment for Canada’s economy. Here’s a look at how this can affect you.

1: Your Variable Mortgage Rate Isn’t Going Anywhere… This Year

The Bank of Canada’s Overnight Lending Rate sets the benchmark for borrowing money in Canada; keeping it at one per cent means the banks can borrow from each other with ease, and that discount is passed down to the consumer. It’s why the best variable rate currently sits as low as 2.35 per cent on our Best Mortgage Rates Table, while the best fixed rates still hover around the three per cent mark.

The Bank has made it clear that it won’t hike rates until general economic growth and inflation levels are up to snuff – but neither have been for some time. The Bank also used to warn that a rate increase was inevitable, reminding consumers to prepare for rising mortgage costs in the months to come – but this warning has been left off the announcement since last October. In fact, in a January poll conducted by Reuters, economists now expect the rate won’t rise until between July and September of 2015. When it does rise, it will be by 25 basis points to 1.25 per cent.

2. Low Inflation and High Debt Levels Still Top Worries

In October, the Bank revised its forecasted goal for inflation, saying it wouldn’t hit the benchmark until 2016. In this announcement, the BoC states, “With inflation expected to be well below target for some time, the downside risks to inflation remain important.”  The main culprits? “Excess supply in the economy” and “competition in the retail sector”, meaning suppliers are on the hook to appeal to waning consumer demand.

They also state that “risks associated with elevated household imbalances have not materially changed,” meaning Canadians continue to rack up their household debt levels, and continue to be vulnerable to economic shock as a result.

3. Conflict In The Ukraine Has Rocked Markets

While the Bank’s rate announcements always factor in the effects of unstable global markets, this edition takes specifically into account the recent events in the Ukraine, saying they have “added to geopolitical uncertainty”. As well, emerging markets still in recovery mode from the first few round of the U.S.’s taper have made for wary and bearish investors.

4. The Polar Vortex Left Its Mark

The economy froze along with everyone else as Canada and the U.S. withstood blizzard after blizzard this winter. States the bank, “The global economy is evolving largely as anticipated, with growth expected to strengthen in 2014 and 2015. The United States is still expected to lead the acceleration in advanced economies, although recent data have been softer, largely owing to weather effects.”

While overall 2013 GDP increased by two per cent, beating the 1.7 per cent forecast, December saw a 0.5 per cent step back due to extreme weather conditions that took a wallop out of retail sales.

According to the latest TREB numbers, however, the deep freeze didn’t extend to Canada’s sizzling housing market – sale prices jumped five per cent from January to February to an average of $526,528.

Stay tuned for the next announcement and Monetary Policy Report, to be released on April 16.

Related Topics

Economic News / Mortgage News / Mortgages

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