The Bank of Canada (BoC) reaffirmed at its interest rate decision October 28, 2020 that cheap money is here to stay.
The BoC had previously stated that rates would remain at their effective lower bound — currently 0.25% where it has been since March — “until 2% inflation target is sustainably achieved,” but went a step further this time by providing a specific year.
“The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed…In our current projection, this does not happen until into 2023,” the Bank’s statement read.
Long Recovery Ahead
While the Bank left its policy untouched, it did announce changes to its program whereby the BoC has been purchasing bonds to maintain market liquidity, which has helped to keep mortgage rates low.
“Our main message today is that it will take quite some time for the economy to fully recover from the Covid-19 pandemic,” BoC Governor Tiff Macklem said during a press conference that followed the rate announcement. “The Bank of Canada will keep providing monetary stimulus to support the economy through the recovery.”
What Does this Mean for Mortgage Rates?
The Bank’s announcement affects both fixed and variable rates. Fixed rates are expected to remain low, and likely fall further, due to the Bank’s renewed commitment to purchasing longer-term bonds, which will help keep rates low for the ever popular 5-year fixed term.
And the Bank’s guidance on maintaining its overnight rate at 0.25% until at least 2023 bodes well for existing variable-rate holders, to the extent they can rest assured their rates won’t rise.
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors