Eight times per year, the Bank of Canada meets to determine what the base lending rate should be. Any change to this industry benchmark indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This information is also a good indicator of the current status of the Canadian economy.
The Bank of Canada made its final interest rate announcement of 2016 this morning, opting to maintain the benchmark interest rate at 0.5 percent. The corresponding prime rate at most major Canadian lending institutions remains at 2.70 percent.
This morning’s announcement was made just one week after the last of Canada’s new mortgage rules came into effect on November 30, 2016. Although it will take some time to fully measure the impact of these changes, TD Bank made the decision to increase its variable mortgage prime rate to 2.85 percent shortly after the first set of rules were implemented on October 17, 2016. So far, no other banks have followed suit. For further information on these changes and how they could impact you, see our recent blog post.
Growth in the Canadian economy is anticipated to be moderate in the fourth quarter, following a slow first half of the year and a surprisingly strong third quarter. Increased growth consumption in the third quarter is being attributed to the federal government’s new Canada Child Benefit, however, the effects of infrastructure spending have yet to be reflected in the Bank’s latest GDP data. Inflation is sitting slightly below the Bank’s projections due to lower food prices.
Although signs of a stronger global economy are evident, economic uncertainty remains unchanged and continues to dampen investment in Canada’s major trading partners. A “rapid back-up” in global bond yields has been recorded following the recent election in the United States, and the Bank reports that “Canadian yields have risen significantly in this context.”
The Bank is scheduled to make its next announcement on January 18, 2017, alongside the release of the first Monetary Policy Report of the year. This report will include updated projections for the Canadian economy as well as inflation.
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