Bank of Canada Announcement - Interest Rate Future 

(December 03, 2014 )

Below is a summary from the BC Real Estate Associations report on the Bank of Canada's announcement today that there will be no change in the overnight lending rate which sits now at 1%.  Pretty wild that this is the longest time frame in over 60 years that this rate has remained unchanged.   There are of course as number of factors that led to the Bank's decision to hold rate as you will read below but as we have heard may times in the recent past they are predicting a rise later in 2015 by perhaps .25%.   We shall see if this happens and it does, what it will do to the mortgage markets and subsequently the real estate market locally here in Victoria, BC.

Bank of Canada Interest Rate Announcement - Dec 3, 2014

The Bank of Canada announced this morning that it is holding its target overnight rate at one per cent. This marks the longest period without a change in the Bank’s policy rate since the 1950s. In the statement accompanying its decision, the Bank noted that inflation has been stronger than expected in the past year, though mainly due to temporary factors. The Bank also stated that slack in the Canadian economy appears to be lower than projected in October due to upward revisions to growth as well as a broadening Canadian economic recovery. The Bank cited falling oil prices and household financial imbalances as key risks to its outlook. 

Perhaps the most pressing development for the Canadian economy, and therefore monetary policy, is the recent downturn in oil prices. Untangling the macroeconomic consequences of declining oil prices can be complex for an oil-producing country like Canada. However, the recent decline in oil prices will likely be felt strongest on growth through decreased output in the oil and gas industry and on inflation through lower prices for energy products, particularly gasoline.  This suggests a delay in inflation returning to the Bank's 2 per cent target. We expect the Bank will begin slowly raising its overnight rate, starting late next year with perhaps a 25 basis point increase. That should translate to modestly higher mortgage rates in 2015.