Bank of Canada maintains current level of policy rate; expected to remain on hold until inflation objective is sustainably achieved
In a scheduled announcement on March 10th, 2021, the Bank of Canada kept its target for the overnight lending rate at its effective lower bound of 0.25%. The Bank signaled it will continue to keep rates low until economic slack is absorbed and inflation is sustainably back to its 2% target, which the Bank doesn’t anticipate will happen until 2023. The Bank also recommitted to maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.
Despite ongoing challenges across regions and sectors, the Bank is seeing a recovery in the global and US economy, with the US economic recovery gaining momentum as virus infections decline and fiscal support boost income and consumption. In Canada, the Bank noted that the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures, with GDP growing by 9.6% in the final quarter of 2020 and a stronger housing market highlighted as a source of strength. The strength of economic activity in the United States and higher commodity prices have also brightened the prospects for exports and business investment according to the Bank.
Even with this stronger near-term outlook, the Bank still sees considerable room for improvement and further uncertainty about the evolution of the virus and the path of economic growth. The labour market has a long way to go, particularly regarding women, low-wage workers and young people, and employment levels will likely take a long time to return to pre-pandemic levels. The threat of new more transmissible variants of the virus also poses the largest downside risk to economic activity, as localized outbreaks and restrictions could restrain growth and slow the recovery.
As of March 10, 2021, 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 1.99%. 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 April 21, 2021 and 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.