No Change for Mortgage Rates in BoC December Announcement

The Bank of Canada, which sets the cost of borrowing for the nation’s consumer lenders, opted to leave interest rates untouched today; it has maintained its trend-setting Overnight Lending Rate at 1.75%, following a hike two months ago.

While it was widely expected in October that another increase would occur this month, a number of new developments impacting the economy cooled analysts’ expectations, and have led the central bank to back away from its previously hawkish stance.

A recent month-over-month plunge in oil prices, and the Albertan provincial government’s decision to temporarily slash production, are cause for caution says the Bank, as “activity in Canada’s energy sector will likely be materially weaker than expected.”

As well, despite “encouraging developments” at the G20 meetings, there are a number of emerging trade conflicts which could pose a threat to Canada’s economic stability, it’s expected business investment will improve once the USMCA is signed.

Mortgage Rules Improving Economy, Says Bank

However, there are positive developments underpinning the BoC’s forward-looking stance: household credit is beginning to stabilize as a result of tougher mortgage criteria and lending standards introduced last year, though the Bank is keeping a close eye on the resulting impact on borrowers and buyers. Rising interest rates and regional housing policies have also effectively reduced home buyers’ purchasing power, which has taken some of the steam out of the housing market.

Related Read: OSFI Introduces New Mortgage Rules

More Hikes to Come

Despite this month’s cautious approach, the BoC has signalled that it still intends to achieve a “neutral” interest rate, which would be in the range of 2.5 – 3%. That means, if the economy continues to support it, a series of hikes will likely occur in 2019.

“Weighing all of the developments, Governing Council continues to judge the policy interest rate will need to rise into a neutral range to achieve the inflation target. The appropriate pace of rate increases will depend on number of factors. These include the effect of higher interest rates on consumption and housing, and global trade policy developments.

“The persistence of the oil price shock, the evolution of business investment, and the Bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy.”

What Does This Mean for Borrowers?

As these changing economic factors have led the central back to prolong its hiking agenda, this has granted prospective mortgage borrowers and home buyers a brief respite as the Prime borrowing rate will remain the same at all large financial institutions and, by extension, the Bank of Canada’s five-year benchmark rate which is used as the threshold for the national stress test. Those on the fence about purchasing homes for sale are wise to lock in to their pre-approvals now, as it is widely expected the BoC will continue its upward trajectory on interest rates in 2019.

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.