Barrie & District Association of REALTORS® Inc.

Bank of Canada signals rates to remain on hold until inflation objective is sustainably achieved, continues quantitative easing program

In a scheduled announcement on June 9th, 2021, the Bank of Canada kept its target for the overnight lending rate at its effective lower bound of 0.25%. The Bank continues to signal that it will keep rates low until economic slack is absorbed and inflation is sustainably back to its 2% target. The Bank also plans to continue purchasing up to $3 billion worth of Government of Canada bonds weekly as part of its Quantitative Easing program to keep interest rates low across the yield curve.

The Bank noted that with COVID-19 cases falling in many countries as vaccines are rolled out global economic activity is picking up, although there is disparity across different regions. The Bank pointed out that “Financial conditions remain highly accommodative, reflected in broadly higher asset prices. Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation”.

The Bank said economic conditions in Canada have come in broadly in line with what was expected in the April Monetary Policy Report, with first quarter GDP growth coming in at a strong 5.6%, indicating “rising confidence and resilient demand.” However, the employment rate remains well below its pre-pandemic level with low wage workers, youth, and women that work in contact-sensitive sectors being affected most.

With vaccination progress, and provincial containment restrictions easing, the Bank expects the Canadian economy to continue rebounding, led by consumer spending. Housing market activity is expected to moderate but remain elevated. Looking ahead, the Bank “remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.” In the Bank’s April projection, this happens sometime in the second half of 2022.

Effective June 1st, 2021, the minimum qualifying rate for all mortgages is the greater of the mortgage contract rate +2% or 5.25% as set by OSFI and the Department of Finance. 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 2.14%. Homebuyers 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 July 14th, 2021, which will be accompanied by a full update of the Bank’s outlook for the economy and inflation, including risks to the projection, in its Monetary Policy Report.