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The Bank Of Canada Maintains Policy Rate at Current Level to Facilitate Economic Recovery

December 10, 2020 • Bank of Canada Announcement

digital chartWhile COVID-19 cases continue to rise and lockdowns are put into place, there is also positive news. Effective vaccines are being developed and work is underway to make them available to the public.

As Canada prepares for the rollout of these vaccines, The Bank of Canada continues to provide the monetary policy stimulus needed to support economic recovery.

Today, the Bank announced that it will continue to maintain its target for the overnight rate at the effective lower bound of 0.25% and continue its quantitative easing (QE) program at the current pace of at least $4 billion per week.

The Bank shared that the second wave of COVID-19 could set back recoveries in many parts of the world. It is committed to keeping the interest rates low across the yield curve to ensure that the economic slack is absorbed and eventually the 2% inflation target is sustainably achieved in Canada. According to the projections, this may not happen until 2023.

As the interest rate remains incredibly low, banks are gearing up to offer unprecedentedly low mortgage rates. Just a few days ago, HSBC announced that it will offer a 0.99% variable rate for five-year closed term mortgages!

On the mortgage debt front, CMHC has indicated that there has been an acceleration in the total outstanding mortgage debt during the first half of 2020. The organization attributes this rise partially to the sales that concluded before the pandemic-induced shutdowns.

Additionally, many financial institutions provided the option of mortgage payment deferrals (up to 6 months) which resulted in about 760,000 deferred mortgage payments across chartered banks.

While the Bank noted that the economic momentum was stronger than it expected in October, COVID-19 induced closures and restrictions could slow down the growth in the first quarter of 2021. An uneven trajectory is expected until a vaccination plan is rolled out and implemented.

Earlier, the Bank also released a Financial System Survey, which showed that financial industry experts, in Canada, were quite confident that the financial system could withstand another shock.

We believe that the next few weeks will be critical in shaping the path for both health and economic wellbeing of Canadians, as vaccine rollout plans are announced and COVID-19 restrictions are modified.

The press release from Bank of Canada is available here: https://www.bankofcanada.ca/2020/12/fad-press-release-2020-12-09

If you have any further questions about the impact of these policies on the real estate market or would like to learn how Teranet can help you navigate the everchanging housing and mortgage markets, visit www.teranet.ca.

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