Anticipated Mortgage Rate Announcement!

Excellent information from Easy123 Mortage on the recent mortgage rate announcement!

Ever since the US Fed hinted that they are expecting to raise their rate sooner than expected, there has been increasing speculation that the Bank of Canada would increase their rate on their next scheduled rate announcement which came on January 26th. In fact, economists were predicting a 70% chance of a rate increase on this date.

The Bank of Canada announced this morning that they will be holding rates where they are for now.

 Why Didn’t They Raise Their Rate?

Canadian economic growth has been stronger than expected, however we are still in the middle of a lockdown. The US is not plagued by the same restrictions, which gives their economy an edge. While they’ve moved up their projected rate increase, it’s not expected to happen until March. As the Bank of Canada usually follows the US, it seemed unlikely that we’d see them increase their rate this much sooner.  Uncertainty tends to keep rates low.

On the other end of the stick, inflationary pressures continue to be a significant concern. The BOC expects CPI inflation to remain close to 5% for the first half of 2022, however they expect this to pull back to 3% by the end of the year.

 What Can We Expect From The Next Bank of Canada Rate Announcement?

This will depend largely on Omicron’s economic impact leading up to their next scheduled rate announcement on March 2nd. They expect it to be “less severe than previous waves”, which could result in it fizzling out sooner than later. 

“Economic growth is then expected to bounce back and remain robust over the projection horizon, led by consumer spending on services, and supported by strength in exports and business investment”, the Bank stated in their announcement.

Since the summer, the Bank of Canada was expected to hold their rate until sometime in the middle two quarters of 2022. They stated in their announcement that they are ending their commitment to holding this position.

While there is still a chance that we won’t see an increase until April, there is a possibility that they will increase on March 2nd.  In their announcement, the Bank of Canada acknowledged that they need to increase rates.

We all know that already. It’s just a matter of when, and how many increases we’ll see.  

 How Many Rate Increases Are Expected?

Many are expecting the Bank of Canada to increase their key policy rate four times this year, with some economists anticipating as many as five.

Even if this happens, it still won’t be back to pre-pandemic levels.

It was the start of the pandemic that led to the Bank of Canada slashing its rate by 1.50% within a few short weeks.

That means it would take six rate increases before we are back to where we were before this whole mess began.

They will eventually get there, but they can’t move too quickly. I think even four increases would be aggressive and can see the actual number being more like two or three.

Time will tell.

 Rate Cuts Will Follow

The more frequently the Bank of Canada increases its rate, the sooner they will need to make a downward adjustment. All the talk is about rate increases, yet we never hear anyone talking about the decreases that will follow.

And they will. It’s just a matter of when they come.

The spread between fixed and variable rates is larger than it’s been in years, which makes variable rate mortgages viable options for many, despite the rate increases we can expect throughout this year and beyond.

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