Posted by: Jason McLean
on Sep 07, 2011
The Bank of Canada announced today that the benchmark interest rate would remain at 1% and that it would likely stay there for quite a while. Varying opinions have the rate staying unchanged until at least the spring while others have it staying unchanged until next fall. The bottom line is that the Prime rate won’t change for quite a while. Please keep in mind that the lenders have been reducing the discounts on variable mortgages so even though the Prime Rate baseline may not change, unless you are already in a closed term, the lenders can still change the discount to effectively raise the rates.
Decent variables are still available at Prime less 0.70% but these may disappear if we see a repeat of the credit crunch of 2008.
The main reasoning behind the Bank of Canada’s announcement is continuing weakness in the global economy. This has reduced the overall demand for most of Canada’s exports and reduced the inflation risk that has been a concern for the past year or two. Additionally, any increase in rates would further drive up the value of the Canadian dollar which would only exacerbate the low demand for Canadian products.
Fixed rates continue to hover at near record lows. Although there is enough room in the spreads for lenders to further reduce the fixed rates, most lenders are being extremely cautious so that they can absorb the market fluctuations that seem to occur with every bit of financial news that is released. The next major news item will be Obama’s speech on job creation plans that will probably be occupying lots of TV air time on Thursday night. US consumer spending accounts for about 20% of the global economy so it will benefit everyone if more US jobs are created and consumer confidence rises accordingly.
The Canadian dollar should stay above par for the foreseeable future but it is currently looking less likely to hit the lofty level of $1.08 as it did earlier in the year.