Bank of Canada Holds Rates Steady Once Again in December Announcement


The Bank of Canada, which sets the cost for consumer lenders’ mortgage and borrowing rates, opted to leave its trend-setting rate untouched in its December announcement, keeping it at 1.75% for the ninth month in a row. It was a widely expected move from the central bank by economists who figured recent stabilization in foreign economies, as well as a solid Canadian dollar and trade, gave it the platform it needed to leave monetary policy at status quo.

Economic Growth Stays Close to Forecast

According to the BoC, late-year economic growth remains in line with what was forecasted in its October report, while improved conditions in other global economies are a positive indication of stability.

“There is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years,” the BoC states.

As well, the BoC points to a number of recent rate cuts made by other central banks around the world as a factor behind settled economic growth – a trend it has thus far put off joining due to Canada’s overall strong fundamentals.

“Financial markets have been supported by central bank actions and waning recession concerns, while being buffeted by news on the trade front,” reads its release. “Indeed, ongoing trade conflicts and related uncertainty are still weighing on global economic activity, and remain the biggest source of risk to the outlook. In this context, community prices and the Canadian dollar have remained relatively stable.”

While economic growth in Canada slowed in the third quarter to 1.3%, this remained in line with its forecast. Meanwhile, the economy was propped up by moderate consumer spending. Strong demand for MLS listings in Canada, partially fueled by low mortgage rates and population increases, also underpinned strong consumption numbers. 

Core inflation – a key measure used by the Bank when setting its interest rate – continues to be on its target of 2%, which signals the economy remains close to capacity. While it’s expected it’ll tick higher due to more expensive gas prices in the winter months, it’ll stay close to 2% over the next two years.

“Based on developments since October, Governing Council judges it appropriate to maintain the current level of the overnight rate target,” states the Bank. “Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy – notably consumer spending and housing activity. Fiscal policy developments will also figure into the Bank’s updated outlook in January.”

Mortgage Rates to Remain Stable

The Bank of Canada’s trend-setting interest rate – also known as its Overnight Lending Rate – is used by the nation’s consumer banks to set their own variable cost of borrowing. This means, when the BoC cuts or hikes its rate, the banks will do the same regarding their variable mortgage and line of credit rates. 

As there was no change announced in today’s rate announcement, those holding variable mortgages will see no change in the near term to their monthly payments. As well, the pricing environment will remain stable for borrowers looking to apply for brand new variable mortgages, as well as those looking to renew or refinance their existing home financing.

About Penelope Graham

Penelope Graham is the Managing Editor at Zoocasa, and has over a decade of experience covering real estate, mortgage, and personal finance topics. Her commentary on the housing market is frequently featured on both national and local media outlets including BNN Bloomberg, CBC, The Toronto Star, National Post, and The Huffington Post. When not keeping an eye on Toronto's hot housing market, she can be found brunching in one of the city's many vibrant neighbourhoods, travelling abroad, or in the dance studio.