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Bank Of Canada Raises Interest Rate to 0.5% At June 2010 Meeting

Only one direction to go!

This morning at its June 1, 2010 meeting, the Bank of Canada raised its key overnight lending rate (the rate at which it lends funds to chartered banks) one-quarter per cent (25 basis points) to 0.5%, its first rate hike in almost three years.

What can we expect? Banks will be increasing their prime lending rates. This is the rate upon which variable-rate mortgages are based, as well as other borrowing products such as personal loans, and some credit cards. The quarter-per cent hike translates into about $12 more per $100,000 of borrowed funds.

One thing to consider if you’re going to be renewing your mortgage or taking out a new mortgage when you buy, is that the lender discount from prime rate has been increasing (best I’ve heard is prime -0.6% lately), which may help make up for this first rate hike. Talk to an experienced mortgage broker and see what your options are.

The Bank of Canada’s move to increase rates comes amid a shaky worldwide recovery and only time will tell if more rate hikes will be necessary.

Bottom line: don’t panic. Rates are still historically low and will likely remain so for the foreseeable future. Mortgage rates have been on a generally downward trend for about 30 years.

The full Bank of Canada news release can be found here.

Tim Ayres – Sooke Real Estate Professional

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Bank Of Canada Cuts Interest Rate to 0.25% At April 2009 Meeting

Snip!

Snip!

To the surprise of many analysts, this morning at its April 21, 2009 meeting, the Bank of Canada cut its key overnight lending rate (the rate at which it lends funds to chartered banks) another half-percent to 0.25%, continuing the trend of historic low rates in an effort to stimulate the economy. Since December 2007, the Bank has trimmed 4.25% off its overnight lending rate, which has had the effect of lowering mortgage rates (especially variable rate mortgages).

Two of Canada’s chartered banks were quick to match the rate cut, trimming prime to 2.25% – a good sign that credit is available and our banks are ready to lend. This should translate into lower variable-rate mortgage products in the coming weeks. If you’re already on a variable-rate mortgage tied to the prime rate, then you’ll get a letter from your financial institution soon, advising you of the change. If you’re lucky enough to have a prime rate -0.85% mortgage, this means that with bank prime being at 2.25%, you’ll be paying a paltry 1.40% on your variable rate mortgage. That’s almost free.

The Bank predicts that fiscal and financial stimulus measures initiated by governments and central banks worldwide have been slower than expected to take hold, and will be holding the 0.25% rate until the end of the second quarter of 2010, barring unforeseen circumstances. All this means that recovery of our economy is going to take longer, starting late next year, with the economy reaching full capacity in 2011.

The full Bank of Canada news release can be found here.

Tim Ayres – Sooke Real Estate Professional

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Bank Of Canada Cuts Interest Rate to 0.5% At March 2009 Meeting

Scissors

Big scissors for a big job!

UPDATE: CLICK FOR THE APRIL 21st, 2009 INTEREST RATE ANNOUNCEMENT

This morning at its March 3, 2009 meeting, the Bank of Canada cut its key overnight lending rate (the rate at which it lends funds to chartered banks) another half-percent to 0.5%, continuing the trend of historic low rates in an effort to stimulate the economy.

Canada’s big five banks were quick to match the rate cut, trimming prime to 2.5% – a good sign that credit is available and our banks are ready to lend. This should translate into lower variable-rate mortgage products in the coming weeks. If you’re already on a variable-rate mortgage tied to the prime rate, then you’ll get a letter from your financial institution soon, advising you of the change. If you’re lucky enough to have a prime rate -0.85% mortgage, this means that with bank prime being at 2.5%, you’ll be paying a paltry 1.65% on your variable rate mortgage. That’s almost free.

The Bank predicts that fiscal and financial stimulus measures should start to take hold later this year and into next to help the economy recover, and hints that rates will remain at this level or may decrease further until excess supply in the economy is taken up.

The full Bank of Canada news release can be found here.

Tim Ayres – Sooke Real Estate Professional

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Bank of Canada Slashes Interest Rates In December 2008 Meeting

Chop Chop Goes The Interest Rate!

Chop Chop Goes The Interest Rate!

UPDATE JAN 20, 2009: Click Here

In an effort to provide economic stimulus, the Bank of Canada has lowered its key overnight interest rate by 3/4 of a percent to 1.5% in its meeting today. Since the Canadian economy has been effectively hung out to dry by the political three-ring circus in Ottawa, I’m not surprised to see such a deep cut. If Parliament can’t/won’t do anything, then it’s up to the monetary policy makers at the Bank of Canada to provide stimulus to our economy.

Citing worse-than-expected economic performance both in this country and around the globe, the Bank has admitted that we are in fact in recession, but notes that recent fiscal and monetary actions by world governments is starting to have a positive effect on financial markets, however more time is needed for things to stabilize.

The trimming of the key rate provides a 50-year low in borrowing costs in Canada.

As with any rate cut by the BoC, it remains to be seen whether or not those savings will be reflected in the Big Five banks’ prime lending rates, currently at 4.0%.

Assuming the banks adopt the Bank’s drop in lending rates, and with the recent decline in real estate prices, sidelined buyers may just decide it’s a good time to enter the marketplace.

The Bank of Canada next meets on January 20th, 2009 to set the overnight rate. You can read the full Bank of Canada news release here.

If you have any questions about mortgages or about buying or selling real estate, please call me at 250-885-0512 or use the following link to contact me.

Tim Ayres – Sooke Real Estate Professional

Your comments are welcomed and encouraged!
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You can bookmark this post using the button below,
or get free updates using the big buttons on the sidebar!

Bank Of Canada Slashes Key Interest Rate by 0.5%

UPDATE: JUNE 10 INTEREST RATE ANNOUNCEMENT POSTED HERE

April 22nd, 2008

In keeping with its mandate to keep inflation in Canada at the 2% target, the Bank of Canada todayBank Of Canada announced that it was lowering its overnight lending rate by 50 basis points (one-half per cent) to 3%. Citing deepening economic woes in the U.S., tightening credit conditions, and overall instability in the world economy, it’s hoped that this economic stimulus, along with strong domestic demand and high employment, will help keep Canada’s economy performing well.

The Bank forecasts that Canada’s economy will grow by 1.4% this year, 2.4% in 2009, and 3.3% in 2010 when the Bank also projects that inflation will reach the target 2%. The overnight rate has been lowered 150 basis points (1.5%) since December of last year.

The press release hinted that this may be the last of the rate cuts for a while – the timing of any further monetary stimulus will depend on global conditions and their effect on Canadian inflation.

This news is positive to anyone on a variable-rate mortgage, which is tied to the central bank rate. Fixed-rate mortgages are slower to come down, but should fall into line with the rate cut. With more and more choices on the market than in recent years, buyers are in a good position to extend their purchasing power and get into their perfect place.

The Bank’s next meeting to discuss interest rates is June 10, 2008.

Read the full Bank Of Canada press release here.

Tim Ayres


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Bank Of Canada Cuts Interest Rate – Mar 4, 2008

UPDATE: APR 22, 2008 RATE ANNOUNCEMENT

Key rate cut by 1/2 per cent

Citing deepening woes in the U.S. economy that could further affect the Canadian and world economies, the Bank of Canada has slashed its key overnight lending rate by one-half per cent to 3 1/2 per cent. The Bank says that further economic stimulus would likely be required in the near term to keep inflation at the target of two per cent per year over the medium term. This should result in a reduction in mortgage rates by financial institutions.

On another note, Canada’s economy performed pretty much as expected through the four quarters of 2007, finishing above its capacity for that year.

The Bank of Canada Press Release:

Bank of Canada lowers overnight rate target by 1/2 percentage point to 3 1/2 per cent

OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of one percentage point to 3 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 3 3/4 per cent.

Information received since the January Monetary Policy Report Update (MPRU) indicates that economic growth in Canada through the four quarters of 2007 was broadly in line with expectations. Domestic demand has remained buoyant, as rising commodity prices and high employment have continued to support income growth. Canada’s net exports weakened further in the fourth quarter, reflecting the slowing U.S. economy and the impact of the past appreciation of the Canadian dollar. Overall, the Canadian economy remained above its production capacity at year-end. Core and total CPI inflation – at 1.4 per cent and 2.2 per cent, respectively, in January – have also been consistent with the Bank’s expectations.

At the same time, there are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January. This stems from further weakening in the residential housing market, which is adversely affecting other sectors of the U.S. economy and contributing to further tightening in credit conditions. The deterioration in economic and financial conditions in the United States can be expected to have significant spillover effects on the global economy. These developments suggest that important downside risks to Canada’s economic outlook that were identified in the MPRU are materializing and, in some respects, intensifying.

The Bank now judges that the balance of risks around its January projection for inflation has clearly shifted to the downside, and, as a result, the Bank is lowering the target for the overnight rate. Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term.

The Bank will publish a new projection for the economy and inflation, including risks to the projection, in the Monetary Policy Report on 24 April 2008.

Information note:

The Bank of Canada’s next scheduled date for announcing the overnight rate target is 22 April 2008.

See all posts about interest rates here.

Tim Ayres


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Bank Of Canada Cuts Interest Rate – Jan 22, 2008

As expected, Bank of Canada cuts the key lending rate by 1/4 per cent.

The Bank of Canada this morning announced its expected 1/4% cut in Canada’s mortgage-rate Money-money-money-monnnnnaaaaay!setting overnight lending rate. The anticipated move is made to ensure that the Canadian economy continues to grow, despite continuing struggles in the world economy dealing with the fallout of the credit crisis brought on by the housing meltdown in the United States. Borrowers in Canada can expect their lending institutions to lower their mortgage rates in the coming weeks, and variable rate mortgages should decrease as well.

There was a highly-sensationalized story reported last week that the major banks may not follow the Bank Of Canada’s monetary policy and would instead keep rates where they are, thereby increasing profitability in the wake of tightening credit availability. This is unlikely, and was denied by the major banks the following day. All it would take would be one institution to offer the lower rate, and competition being what it is, the other banks would be forced into line.

This is good news for homeowners and potential buyers. The outlook for inflation is below the 2% target rate, and is expected to stay this way until the end of 2009. The increased competition in retail sales brought on by price cuts due to the high Canadian dollar has slowed inflation to the point where it will be below 1.5% by mid year. To stimulate aggregate demand (overall spending in the economy) to return inflation to the target 2%, the Bank will likely continue to adjust downward the interest rate over the coming year.

With housing price growth expected to cool this year, and interest rates remaining stable or lowering, the erosion of housing affordability we have witnessed over the past few years should slow somewhat.

The full Bank of Canada news release can be found here.

The US Federal Reserve, in charge of setting monetary policy for our southern cousins, has meanwhile slashed rates 3/4%, the biggest cut in 23 years in an effort to ward off the threat of a U.S. recession.

Tim Ayres

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