In January the Bank of Canada stated they would “wait and see” what would happen in the Canadian and global economies before moving forward with continued interest rate hikes. This month it seems they are still waiting and seeing. The overnight rate remains unchanged at 1.75% for six months running.

In 2017 the Bank had become more and more forthright in their plan to implement several interest rate hikes in order to keep inflation within an optimal range. They managed to squeeze in 5 increases of 0.25% to their overnight rate before they realised  sometime after last October that they needed to take a breath and further assess the impact. Since then the Bank has left the overnight rate where it is.

In their statement last week, the Bank said, “Recent data suggest that the slowdown in the global economy has been more pronounced and widespread than the Bank had forecast in its January Monetary Policy Report” In other words, things didn’t go according to plan. It was expected that Canada would experience a temporary slow down at the beginning of this year, but it has turned out to be “sharper and more broadly based” than anticipated. The Bank went on to say, “it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January.”

The target for inflation is a rate of 2.2%. Last year Canada saw an overall rate of 1.4%, and Alberta in particular was the weakest of the country at 1.2%. The province actually experienced a deflation rate of -0.5% in November, and -0.1% in December, and then flat lined at 0% in January.

Fortunately, not all the news is bad. Existing and potential home owners will be glad to hear that interest rates on their mortgage haven’t gone up, and in some cases have actually gone down. “Variable rate holders should be pleased, as any increase to prime rate will be further in the future than the Bank has signaled in prior rate announcements,’ said James Laird, president of CanWise Financial. “The softening rate outlook will put downward pressure on bond yields, causing fixed rates to drop as we enter the spring homebuying market… Overall this announcement will be helpful to first-time homebuyers looking to enter the housing market this spring.”

On top of favourable interest rates for home owners, there is the possibility that the dreaded mortgage stress test introduced last year may be short lived. The Regulator for the Office of the Superintendent of Financial Institutions (OSFI) stated off the record at a meeting for Canadian Mortgage Influencers that the stress test worked “too well.” Fancy that.

To find out more about how the overnight rate impacts your mortgage contact us today.