Category Archives: best mortgage rates

How rising interest rates are squeezing homeowners

Mortgage holders on tenterhooks as they prepare for Bank of Canada’s next rate announcement Oct. 25

Gerry Corcoran is bracing for Oct. 25. That’s when the Bank of Canada will make its next interest rate announcement, on the heels of two consecutive rate hikes. Corcoran said he can’t afford a third.

“A lot of us with variable rate mortgages are on pins and needles because we’re like, ‘Are we going to get hit again?'”

‘It’s kind of smacked my finances around a little bit.’– Gerry Corcoran, new homeowner

Corcoran, 38, signed the mortgage for his two-bedroom condo in Stittsville back in June.

Two weeks later, on July 12, the Bank of Canada announced a rate increase of .25 per cent, the first increase in seven years. It was followed by a second .25 per cent increase in September.

As someone with a variable rate mortgage, Corcoran says those small rate hikes have had a sizeable impact. He estimates they’ll cost him about $65 per month.

While it’s a cost he says he can absorb, as a new homeowner Corcoran only has a few hundred dollars a month in disposable income. It’s also meant he’s had to put on hold his plan to enrol in his employer’s matching RRSP program until next year.

“It’s kind of smacked my finances around a little bit,” he said. “It hurts.”


 


Gerry

‘A lot of us with variable rate mortgages are on pins and needles because we’re like, ‘Are we going to get hit again?” (Ashley Burke/CBC News)

Homeowners in ‘panic mode’

After years of record-low interest rates, people in the mortgage business say they’ve been waiting for this other shoe to drop.

Erin MacDonell, a mortgage agent with Mortgage Brokers Ottawa, says she saw a spike in calls after the rate hikes. Many callers were eager to buy — or refinance their mortgages — before rates went up again.

“People are in a little bit of a panic mode,” MacDonell said.

But even if interest rates continue to climb, she says a new federal “stress test” will help mortgage holders weather the changes.

Erin MacDonell, mortgage agent, ottawa mortgage brokers

Mortgage agent Erin MacDonell says calls from both potential buyers and homeowners looking to refinance spiked when the Bank of Canada announced a rate increase in July. (Ashley Burke/CBC Ottawa)

Under the safeguard introduced last October, a borrower had to be approved against a rate of 4.64 per cent for a five-year loan — even though many lenders are offering much lower rates. That rate is now 4.84 per cent.

The test applies to all insured mortgages where buyers have down payments that are less than 20 per cent of the purchase price.

“No one should be struggling too, too much,” MacDonell said.

Instead, she predicts future rate hikes will simply mean “people won’t be qualifying for as big of a house as they maybe wanted in the past.”

Gerry Corcoran says despite being forced to tighten his belt, buying was still the right choice for him.

“At the end of the day, even with mortgage and condos fees, I am still paying less to own this place than [I’d pay] to someone else to rent it.”

Source: Karla Hilton · CBC

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New financing rules could drive more consumers into more volatile mortgages

Proposed changes to mortgage rules may force some consumers to consider more volatile variable rate mortgages in order to qualify under a strict stress test proposed by Canada’s banking regulator.

Guidelines published by the Office of the Superintendent of Financial Institutions in July, which the agency is now receiving feedback on, would change the qualifying rules for uninsured mortgages in Canada — a less regulated segment of the market made up of consumers who have down payments of 20 per cent or more.

The rules under consideration would force consumers to qualify for loans based on the rate on their contract plus 200 basis points, a move that might lead some people into shorter term loans that have lower rates and are therefore easier to qualify for.

“It could be one of the unintended consequences,” said Benjamin Tal, deputy chief economist with CIBC World Markets Inc., about the changes. Tal believes OSFI will modify its proposal before it is finalized and one of the factors under consideration could be how the rules might discourage Canadians from locking in their rates.

Rob McLister, the founder of ratespy.com, said the potential impact of the changes can be seen when examining the current yield curve, which shows longer term rates are still much higher. As an example, with the prime rate now 3.2 per cent and the average discount on a five-year variable rate mortgage around 65 basis points, that means those consumers would have to qualify based on a rate of 2.55 per cent plus 200 basis points or 4.55 per cent.

 

“Generally, the variable will be cheaper. Maybe the one-year or two years (even more so). We have people who can’t qualify because of 10 basis points. I think it will force at least 10 per cent of uninsured borrowers to look at shorter-term rates that have more risk,” said McLister, who notes the average five-year fixed rate mortgage is more like 3.19 per cent.

Those consumers looking for the safety of a five-year rate would end up having to qualify based on 5.19 per cent with the 64 extra basis points meaning they could get a larger loan by borrowing at short-term rates.

The Bank of Canada has raised its overnight lending rate twice in the last two months and may do so again in October. Such hikes, which affect variable-rate products that are tied to prime, are part of the risk that comes with a floating rate product.

CONVENTIONAL BORROWER

McLister said a typical conventional borrower would qualify for a home that’s about six per cent more expensive by choosing a lower more volatile variable, one- or two-year rate instead of a “safer” five-year fixed.

That assessment was based on latest median household income from Statistics Canada, average non-mortgage debt, a 30-year amortization and a 20 per cent down payment

The OSFI changes fly in the face of previous government policy, which had tried to entice people into longer-term products by making the qualifying easier.

Consumers with less than 20 per cent down on a mortgage and their loans backed by Ottawa already must qualify based on the five-year Bank of Canada qualifying rate of 4.84 per cent. That rule change was made in October, 2016 but previously those high-ratio borrowers could use the rate on their contract if they were locking in for five years or longer.

Robert Kavcic a senior economist with Bank of Montreal, said households in Toronto — currently facing rapidly declining sales and an average price correction of almost 25 per cent from the April peak, can withstand more rate increases but he agrees people on the fringe may turn to shorter-term money to get into the housing market.

“I think the goal is to make sure people can pay higher rates two or three years down the road,” said Kavcic.”It does sound like there is more caution (about proposed changes) given what is happening in the Toronto market.”

Source: Financial Post – Gary Marr gmarr@postmedia.com

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Home sellers struggling with closing complications after big chill hits market

Realtor Peggy Hill, of Keller Williams, said house closings have been stalling since the end of June. Barrie home prices may not be as high as some closer to the city, but the drop has been precipitous.

Formerly frenzied buyers are reconsidering purchases made in the heat of the market.

Barrie teacher Cheryl O’Keefe doesn’t know how she would have survived the stress-induced sleepless nights of July had school not been out for the summer.

O’Keefe is among Toronto region homebuyers and sellers who got caught in the spring real estate downturn.

When the sale on her house finally closed a month past the originally agreed-upon date, it was the end of an expensive nightmare for O’Keefe.

Others who sold their homes in this year’s once frenzied real estate market, are still struggling to complete their transactions.

Lawyers, realtors and mortgage brokers report a surge in calls from distressed sellers whose buyers purchased in the heat of the market, only to find that the subsequent drop in the home’s value is more than the cost of walking away from a deposit.

Others, who bought unconditionally, have discovered they can’t get the financing to meet their purchase obligation. In some cases, the bank appraisal has come in at a value below what a purchaser agreed to pay, leaving the buyer scrambling to make up the difference.

O’Keefe’s real estate agent, Peggy Hill of Keller Williams, says closings have been stalling since the end of June. Barrie home prices may not be as high as some closer to the city, but the drop has been precipitous.

“Our average price for a home in Barrie is $471,822 for July. In March it was $570,199. We’re talking about a $100,000 difference,” she said.

That is still $40,000 above the average price of July 2016. But back then, 208 of the 260 homes listed sold. “This July we have 201 sales so the sales are still there but with 683 active (listings),” said Hill. “That’s the real picture.”

The GTA-wide picture is similar. When the regional market peaked in April, the average home price — including every category from condos to detached houses — was $919,449. By July, it had fallen to $746,216, although prices were still up 5 per cent year over year.

There were 9,989 sales among 11,346 active listings in July of 2016, according to the Toronto Real Estate Board. This July, listings soared to 18,751 listings, with only 5,921 sales.

O’Keefe had lived in her bungalow for only about two years when she decided to sell it in February, about the time property prices were peaking. Her basement apartment was standing empty and she wanted to downsize.

The real estate frenzy in Barrie mimicked Toronto’s and most of the 43 showings of O’Keefe’s house were, in fact, people from Toronto.

Like many homes at the time, O’Keefe’s sold in about a week for more than the listed price. The buyer put down a $25,000 deposit and requested a longer-than-usual four-month closing date of June 28.

“That was fine. It just gave me more time to do what I had to do,” said O’Keefe.

What she had to do was find a new home for herself in the same fiercely competitive market. She lost a couple of bidding wars and turned her back on a century home she loved because she knew it would go at a price she could never justify.

When she happened on an open house that fit her needs, O’Keefe bought it with a May 28 closing — a month ahead of when her own home sale was to be finalized. She arranged bridge financing to cover both mortgages for that month.

It all looked good on paper. But as the spring wore on, O’Keefe grew uneasy. The buyers of her house had not requested the usual pre-closing visit. Usually, excited new owners want a look around.

O’Keefe got her realtor to call. No response.

A week from closing, she had still heard nothing. At 4:50 p.m. on closing day, her lawyer talked to the purchaser, who admitted he was having difficulty with the closing.

By then, O’Keefe had been living in her new place a month and was paying two mortgages.

She agreed to extend the closing to July 14. When that didn’t happen, O’Keefe agreed to a second extension to July 31. The date came and went. Finally on Aug. 2, her lawyer called to say the buyer closed.

“Every step of the way everything that could be a headache has been a headache,” she said.

O’Keefe’s realtor says that so far, in her office, even problematic closings have been finalized. But some have been disappointing.

“There have been deals where we’ve had to take less commission. The seller had to take less money to make it close because at that point they’re euchred.

“It’s usually $40,000 to $50,000 because of our price point. In other areas I know it’s in hundreds of thousands of dollars,” said Hill, referring to areas such as Richmond Hill, Newmarket and Aurora, also hard hit by the market’s downward slope.

Some buyers have requested extensions on new home purchases because their old places didn’t sell, said Hill.

“That’s understandable,” she said. “In March, you wouldn’t dare go in with an offer conditional on the sale of a home. The problem is, in April, when all hell broke loose, everybody started putting their houses on the market fearing they had missed the top.”

Many have arranged bridge financing and moved on. But others haven’t been as fortunate, said Toronto lawyer Neal Roth.

He has been getting about five calls a week since mid-May from home sellers struggling to close on transactions.

“There is this horrendous domino effect going on where people in the spring were rushing into the market for a variety of reasons, committing to prices that in some instances were well beyond their means,” he said.

Most of his callers represent one of two scenarios.

First, there’s someone paid $1.5 million for a house that has since become worth $1.4 million, so they want to get out of the purchase.

“The other type of person says, ‘The bank promised me 60 per cent financing. Now that I’m at $1.5 million I should still get the same 60 per cent, not realizing that you have to come up with the 40 per cent of your own cash, or that the bank said 60 per cent when you were at $1.2 million, not $1.5 million,” said Roth.

While he thinks some sellers got greedy and some buyers should have been more careful, he hasn’t encountered anyone who got caught playing the property market.

“They’re all average people. None of them have been speculators as far as I know,” he said.

It’s not uncommon for mortgage brokers to hear from home buyers struggling with financing, said Nick L’Ecuyer of the Mortgage Wellness Group in Barrie

“But what we’re getting now is people who are in sheer turmoil. They don’t know what to do at all,” he said.

Some sellers, who planned to use their equity to put down 20 per cent or more on another home, don’t realize they can’t get bridge financing from a bank if they don’t have a firm purchase agreement on their old house.

Then there’s the hard truth that the house they’re selling isn’t likely to go for as much as they expected earlier in the year.

They can put down just 5 per cent and apply for a government-insured mortgage, but that’s more complicated and costly, said L’Ecuyer.

The Appraisal Institute of Canada doesn’t have statistics on the number of lender-commissioned appraisals that come in short of the agreed-upon price of a home.

But based on anecdotal accounts, it’s happening more now in the GTA, said institute CEO Keith Lancastle.

“Any time you go into a situation where you make an abrupt change from a seller’s market to a buyer’s market — where you see a slowdown for whatever reason — you can encounter this situation,” he said.

The role of an appraiser is to provide an unbiased opinion of a property’s value at a given point of time.

“A heated market does not automatically translate into a true market value. When you take away the heat, all of a sudden it settles down into something that is perhaps more reflective of what true market value is,” said Lancastle.

He says he’s still surprised by how emotional what is routinely now a million-dollar home buying experience can be.

“It’s arguable that mortgage lending should not be underwriting that emotion and that notion of a sober second thought is really important, not only for the purchaser, but also for the lender,” he said.

Buyers tempted to walk away from a deposit need to realize that they may still face a lawsuit, says L’Ecuyer. If you bought a house for $500,000 and decided to forfeit the deposit, and the seller gets only $450,000 from another buyer, you can be sued for the difference, he said. There is also the possibility of being sued by a realtor who isn’t getting a commission, and for additional legal and carrying costs.

Roth said there are people who don’t even realize that when they back out of a sale, their deposit is automatically lost.

O’Keefe believes that because she priced her home on the low side, it hasn’t lost any value. “You start talking to people and this is happening to so many,” she said. “I’m lucky that my house closed.”

Source: Toronto Star – 

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De-mystifying mortgage penalties

Research has shown that over 83 per cent of people break their mortgages early, resulting in their incurring hefty mortgage penalties that sometimes far exceed the annual interest on a mortgage. People break their mortgages early for several reasons, including relocation, the end of a marriage relationship, loss of a job, to take equity out to invest elsewhere and for many other reasons. A mortgage penalty is a fee built into the contract to prevent or make it difficult for you to break the mortgage, in addition to compensating the provider for the loss of interest income. Different mortgage providers calculate the penalty in different ways, which is why it is always a good idea to shop around before settling on one particular provider. Also crucial is ensuring that you read the fine print before signing the mortgage document, so that you have an idea of the penalties (if any), that you are likely to incur in the event that you break the mortgage.
How mortgage penalties are calculated
Traditionally, banks and other lenders have used two main methods to calculate mortgage penalties. This means that in the past, you were assured of paying a standardised penalty depending on which method the bank used. As a rule, you could then expect to pay the greater sum calculated under the following methods:
The three month interest method: Here, you basically calculate the interest due on your next three mortgage repayments and pay the three month total.
Interest Rate Differential (IRD): The IRD is calculated by multiplying your mortgage balance by the difference between your original mortgage interest rate and the current interest rate that the lender can expect to charge upon reselling the mortgage.
The first method has typically been applied on variable rate mortgages, while fixed rate mortgages would use the ‘higher amount’ rule where they pick the larger sum depending on which method is used to calculate the penalty figure. However, with the advent of new mortgage lenders with cheaper interest rates and friendlier lending terms, banks have taken steps to reinforce their customers; including changing the way the IRD is calculated. Today, for instance, you may find that your prepayment penalty is calculated in the following ways:
  • Using posted rates as opposed to discounted ones, which significantly increases the penalty.
  • Basing their penalty calculations around a variety of factors including bond rates.
  • Rounding off to the next longest remaining mortgage term, and many others.
What this means for you as a customer is that your mortgage penalty is likely to be extremely high, or you may find yourself stuck with your current mortgage provider in order to avoid incurring an exorbitantly high penalty. Unfortunately, unless you are an insider in the mortgage industry, you may also find yourself unable to calculate the rate personally, forcing you to rely on the formulas that your lending partner has come up with. Fortunately, there are ways to avoid finding yourself in this situation or at least significantly reduce the penalty you pay to your mortgage lender.
How to protect yourself from high penalties
Whether you are just starting to shop around for a mortgage or are looking to offload a current one in favour of a friendlier option, the following strategies can help you avoid paying a hefty penalty:
  1. Read your mortgage contract thoroughly: Take time to completely go through your contract before signing the document. Ensure you find out exactly what penalty you will be expected to pay in case you decide to break your contract early. Ask your mortgage agent to clarify how the penalty will be calculated and if possible, have a lawyer or other mortgage professional go through the document with you. Make sure to seek clarification on terms you do not understand and ensure that you are clear about any other costs associated with breaking your mortgage early. Ensure to read the fine print and only sign when you are completely satisfied with the terms of the mortgage.
  1. Understand, and take advantage of pre-payment clauses: Pre-payment clauses allow you to pre-pay up to 20 per cent of the balance of your mortgage annually without incurring a penalty. Pre-paying your mortgage allows you to significantly reduce the amount of your mortgage so that you can decrease the penalty you have to pay for breaking the contract. In addition, you can often take advantage of the end and beginning of a calendar year to double your prepayment in order to bring the mortgage balance down even further. For example, you could pay the first instalment at the end of December, and the other as soon as the financial year begins in January. Pre-payment allowances can vary from lender to lender so ensure you understand what options you have.
  1. Ensure that the contract allows you to break your mortgage: One of the most crucial things to look out for before signing the mortgage contract is whether the lender will allow you to break the contract early. Some lenders have clauses built into the contract prohibiting you from breaking it early and ensuring that you pay a very hefty penalty in the event that life circumstances force you to break it unintentionally. Sometimes, these types of “restrictive” mortgage products can come with lower rates. These lower rates are to make up for the fact you can’t break the mortgage early! These lower rates can be tempting, but without having a complete understanding of the mortgage product and it’s restrictions, they can lead to an unfortunate surprise down the road should you decide to break your mortgage early.
  1. Enlist the help of the Ombudsman for Banking Services and Investments Office: While IRDs remain unregulated for now, consumers with valid complaints may still enlist the help of the OBSI office if they feel that their penalties are too punitive. If you have been unable to successfully negotiate a reduction of the mortgage penalty with your mortgage lender, you can get some help from the OBSI, and even get part of the penalty reimbursed if the office rules in your favour.
  1. Learn how to calculate the penalties yourself: Educate yourself about how the various penalties are calculated in order to avoid situations where your mortgage lender rips you off because you are uninformed. As a rule of thumb, variable rate mortgages will use the three-month interest method, while fixed term mortgages will use the IRD. If you are still unsure on how to go about it, contact a trusted mortgage professional who will be happy to help.
Taking out a mortgage is a great way to get a place to call a home or premises to conduct your business. However, changes in life circumstances, the desire to move somewhere else, or simply wanting to access additional equity can force you to break your mortgage contract early, resulting in hefty penalties from your mortgage lender. Canadian mortgage laws are yet to regulate how the mortgage penalties are calculated, which means that many people find themselves at the mercy of mortgage providers as far as penalties are concerned.
Fortunately, there are a few steps you can take to protect yourself from hefty penalties or at least significantly reduce the amounts you pay upon breaking your mortgage. With a little research, you should be able to discover the methods that work best for you. A mortgage loan will likely be the biggest debt you incur in your life and it’s very important to ensure you have a good understanding of the mortgage product’s terms and conditions. Most importantly, ensure to work with a trusted mortgage professional who can help explain the terms of your mortgage commitment to you, and address your concerns about the associated penalties should you decide to break the mortgage down the road.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

Source: WhichMortgage.ca – By Dan Caird  24 March, 2017

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Variable-rate mortgages becoming more important to the market – study

Variable-rate mortgages becoming more important to the market – study

The gap between the number of borrowers going for fixed and variable rates has become larger recently, pointing to the increasingly important role that variable-rate mortgages are playing in the Canadian housing market.

In a recent study, RateHub revealed that while the spread between fixed and variable offerings has shrunk to 0.2 per cent of a percentage point in 2016, movement in the two product types has demonstrated a larger divergence in the past few months.

The best five-year variable rates available in Toronto since November 1 is at 1.83 per cent, while the lowest available fixed-rate product climbed slightly by 0.35 per cent, up to 2.44 per cent.

“We’ve seen increased interest in variable rates,” RateHub co-founder and CanWise Financial president James Laird told Global News.

Laird explained that the rise in bond yields will trigger increases in fixed-rate payments, while the BoC’s benchmark interest rate (which influences variable-rate products) is expected to remain stable for most of the year.

Also, the stricter stress test implemented by the federal government late last year will make variable-rate mortgages—which would end up being the relatively inexpensive options—more enticing.

Laird emphasized, however, that these are just predictions, and there is no assurance that the trend in the spread between fixed and variable rates will sustain itself all year. Would-be borrowers who should ensure they can manage a rate increase before they go with variable-rate mortgages, he added.

Source: MortgageBrokerNews.ca – by Ephraim Vecina | 07 Feb 2017
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An alternative to banking with the Big Five: Join a credit union

loonies

CALGARY — Jeremy Bird was fed up with his bank, so he decided to take his business elsewhere.

Tired of the fees and eager to see his financial institution invest more into his community, Bird made the switch to a credit union about a year ago. And he has no regrets.

“I found the credit union is incredibly friendly. They remember my name when I go in there,” he said.

Like many who gravitate toward credit unions, Bird considers himself a community-oriented person. He’s involved in a cycling advisory group in London, Ont., and is active in local politics.

“When I signed up for the credit union, they gave a $50 donation to a local youth charity, right off the hop,” he said. “Their profits go to community organizations, supporting where I live.”

Credit unions offer many of the same products that major banks do: chequing accounts and mortgages, for example. Bank cards can be used at any credit union ATM across the country — not just the one to which a customer belongs — without charges.

What differs is that credit unions are co-operative. Members get involved by buying shares and becoming owners. For example, to join Vancity Credit Union, members must hold at least five shares with a total value of $5. Members also have the opportunity to get a share of profits.

“Their objective is to serve their members. They’re not driven by shareholders and they’re not driven by strictly a profit motive for shareholders. They’re service driven,” said Martha Durdin, president CEO of the trade group Credit Union Central of Canada.

There are some 700 different credit unions — or caisses populaires, in Quebec — across the country.

The democratic element is a big draw for many members, said Ian Glassford, chief financial officer at Edmonton-based Servus Credit Union, which has more than 100 branches across Alberta.

“It is one member, one vote. I don’t care how much money you have with the credit union,” he said.

Those with social issues on their mind may also be drawn to credit unions.

“Each one picks a part of the world where they want to make a difference, and the fun with a credit union is that you can find the one that best aligns with your values as well,” said Glassford.

But credit unions have a lot to offer from a dollars-and-cents standpoint as well, said David McVay, a financial services industry consultant in Toronto.

“Where an increasing number of credit unions are gaining advantage is offering better value. On that dimension, one of the emerging trend is toward free chequing,” he said.

“The other big differentiator on the value side for many, but not all, is very competitive and transparent pricing on mortgages.”

Yet, it’s been a challenge to snatch market share from the big banks, which are more centralized and able to launch big national advertising campaigns.

That’s changing, though. Big players like Vancity in B.C. or Meridian in Ontario are “taking on the big banks head-on, and quite successfully,” McVay said. The trend is toward consolidation among the smaller players, he added.

“If you haven’t heard about credit unions, stay tuned, because as these mergers happen, there will be powerful brands emerging that you’ll hear more and more about.”

Louise Wallace, who has belonged to a credit union for 15 years, said she’s worried the local flavour is being lost as credit unions vie for business with the big banks. She laments that she may have to switch to a different institution when her mortgage comes up for renewal.

Her small marketing firm in Salmon Arm, B.C., used to provide services to her local credit union, but now those functions and others have become centralized, she said.

Wallace says she doesn’t harbour hard feelings toward her former client, noting the 2008 financial crisis was hard on everyone in the financial sector.

“We love them because they’re small. But they can’t compete small,” she said. “My sad realization is, they’re just like everyone else.”

 

Source: Lauren Krugel, The Canadian Press
Published Thursday, October 2, 2014 11:28 AM  

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Bank of Canada holds benchmark interest rate at 0.5%

The Bank of Canada has kept interest rates unchanged at 0.5%, meeting market expectations.

Following the announcement, the Canadian dollar was rallying a bit against the US dollar, climbing to around $1.337, better than the $1.342 the loonie traded at ahead of the announcement.

The statement indicated that the BoC sees the economy evolving broadly as it expected, with the BoC saying (emphasis ours):

Financial market volatility, reflecting heightened concerns about economic momentum, appears to be abating. Although downside risks remain, the Bank still expects global growth to strengthen this year and next. Recent data indicate that the U.S. expansion remains broadly on track. At the same time, the low level of oil prices will continue to dampen growth in Canada and other energy-producing countries

And while the BoC’s decision Wednesday wasn’t expected to materially change the outlook for markets, it does kick off a busy period for central bank announcements, as the European Central Bank will announce its latest decision tomorrow morning and the Bank of Japan and Federal Reserve will follow next week.

Here’s the full statement from the BoC:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

The global economy is progressing largely as the Bank anticipated in its JanuaryMonetary Policy Report (MPR). Financial market volatility, reflecting heightened concerns about economic momentum, appears to be abating. Although downside risks remain, the Bank still expects global growth to strengthen this year and next. Recent data indicate that the U.S. expansion remains broadly on track. At the same time, the low level of oil prices will continue to dampen growth in Canada and other energy-producing countries.

Prices of oil and other commodities have rebounded in recent weeks. In this context, and in light of shifting expectations for monetary policy in Canada and the United States, the Canadian dollar has appreciated from its recent lows. With these movements, both the price of oil and the exchange rate have averaged close to levels assumed in the January MPR.

Canada’s GDP growth in the fourth quarter was not as weak as expected, but the near-term outlook for the economy remains broadly the same as in January. National employment has held up despite job losses in resource-intensive regions, and household spending continues to underpin domestic demand. Non-energy exports are gathering momentum, particularly in sectors that are sensitive to exchange rate movements. However, overall business investment remains very weak due to retrenchment in the resource sector.

Inflation in Canada is evolving broadly as anticipated. The factors that pushed total CPI inflation up to 2 per cent will likely unwind in the months ahead. Measures of core inflation are at or just below 2 per cent, boosted by the temporary effects of past exchange rate depreciation. Material excess capacity in the Canadian economy will continue to dampen inflation.

An assessment of the impact of the upcoming federal budget’s fiscal measures will be incorporated into the Bank’s April projection. All things considered, the risks to the profile for inflation are roughly balanced. Meanwhile, financial vulnerabilities continue to edge higher, in part due to regional shifts in activity associated with the structural adjustment underway in Canada’s economy. The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.

Source: Business Insider – 

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