For Anyone In a Variable Rate Mortgage

Oct 23, 2013

Surprise, surprise, the overnight rate will remain unchanged for another month but the reasons behind it may slow broker business.

“The Bank judges that the substantial monetary policy stimulus currently in place remains appropriate and therefore has decided to maintain the target for the overnight rate at one per cent,” the Bank of Canada said in a statement released Wednesday.

The reasoning behind holding the rate – which has held steady since 2010 – is due to lower economic activity than originally anticipated. The bank also points to higher mortgage rates as a reason for keeping the overnight rate at one per cent.

“In Canada, uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment, leaving the level of economic activity lower than the Bank had been expecting,” a statement released by the Central Bank. “While household spending remains solid, slower growth of household credit and higher mortgage interest rates point to a gradual unwinding of household imbalances.”

However, there is also hope that the economy will require less restriction once the GDP growth increases – something the bank expects to occur in 2015.

“The Bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining,” the statement said. “Real GDP growth is projected to increase from 1.6 per cent in 2013 to 2.3 per cent in 2014 and 2.6 per cent in 2015.

Until then, however, it appears as if the overnight rate will remain unchanged; at least until the economy returns to what the bank considers normal.

“The Bank expects that the economy will return gradually to full production capacity, around the end of 2015.”

VIA : MortgageBrokerNews