Bank of Canada Does Not Expect to Raise Interest Rates Until 2023

In a scheduled announcement on October 28,2020, the Bank of Canada maintained its overnight lending rate at 0.25%. The Bank noted economic headwinds are rising as the number of COVID-19 cases continues to rise across the country.

The Bank stated it will hold the policy interest rate at its effective lower bound until economic slack is absorbed, and the 2% inflation target is sustainably achieved.

The Bank is making some technical changes to its asset purchase, or quantitative easing program. It will reduce overall asset purchases while targeting assets that have a larger impact of the borrowing rates that are most important to households and businesses. The Bank saidthe adjustments will provide at least as much stimulus as before.

The Bank also stated the recovery was broadly in line with the expectation laid out in the July Monetary Policy Report; however, as the economy enters a “recuperation phase” the Bank is expecting a slower growth rate will continue through the fourth quarter of 2020 and the first quarter of 2021.

While oil prices remain below pre-pandemic levels, non-energy resource prices have, on average, more than recovered.

The Bank highlighted the recovery has been uneven across sectors, with lockdowns impacting low-income workers most severely. As such, government programs will continue to be an important part of supporting the economy.

Therefore the Bank is now expecting the 2% inflation target to not be achieved until 2023. This means borrowers can expect interest rates to remain low for at least the next three years.

As of October 28, 2020, the benchmark five-year lending rate was 4.79%. All mortgage applicants must qualify for financing based on an interest rate no less than the benchmark five-year lending rate, even if the mortgage is for less than five years.

Canada’s major chartered banks are currently advertising five-year fixed mortgage special interest rates of around 1.97%. Home buyers can often negotiate the interest rate for mortgage financing based on their creditworthiness and the degree to which they do other banking business with the mortgage lender.

The Bank of Canada’s next scheduled interest rate announcement will be on December 9, 2020, while the next update of the Bank’s Monetary Policy Report will be on January 20, 2021.

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