What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BoC) makes a scheduled announcement about their benchmark lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financial lenders. For more information, take a look at our blog post breaking down four of the most frequently asked questions regarding the BoC.
Were there any Changes to the Interest Rate?
As anticipated, the Bank of Canada announced no change to its overnight lending rate this morning - opting to hold the rate at 0.25 percent. Notably, the bank updated its projection for how long we can expect the rate to remain at 0.25 percent, with current data pointing to an increase in late 2022 rather than 2023.
What Information did the Bank Share about the Economy?
- While Canada has officially entered its third wave of COVID-19, economic outlook has improved on both a national and global scale.
Recovery remains highly dependent on how the pandemic continues to evolve, with officials paying close attention to the recent rise in variant cases.
- Current projections for global GDP include growth of approximately 6.75 percent in 2021, 4 percent in 2022, and near 3.5 percent in 2023.
- Within Canada, GDP is expected to increase by 6.5 percent in 2021, 3.75 percent in 2022, and 3.25 percent in 2023.
The current strength of the Canadian dollar can be attributed to overall global recovery and its upward impact on commodity prices, including oil.
- First-quarter economic growth in Canada has been significantly stronger than projected in January’s Monetary Policy Report (MPR).
Employment over February and March saw significant gains; however, the sustainability of this increase is highly dependent on any new restrictions or lockdowns implemented during the third wave. Low-wage and youth workers, as well as women, continue to bear the brunt of job losses.
- The bank expects consumption to increase over the second half of 2021 as more of the general population is vaccinated.
Activity in the housing sector remains robust; fueled by historically low interest rates, limited inventory, and a widespread desire to upsize living space.
- A temporary increase in inflation (nearing 3 percent) is expected over the next few months, followed by a gradual decrease to approximately 2 percent in the second half of the year. The bank projects long-term inflation to sustainably hit 2 percent in the last half of 2022.
- The Bank’s Quantitative Easing (QE) program will be adjusted to a spend of at least $3 billion per week effective April 26, 2021; a decrease from the minimum $4 billion weekly injection that was announced in October 2020. Governing Council will continue to monitor the level of fiscal stimulus required to support economic recovery and adjust accordingly.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on June 9, 2021 with no change expected at that time. As noted above, the latest projections by the Bank of Canada hold the rate at 0.25 percent until late 2022. The next Monetary Policy Report (MPR) will be released alongside the rate announcement on July 14.
How Can I Learn More?
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