Interest Rates

Oct. 2016 key interest rate decision: no change

By: Dominic Licorish on October 19, 2016

No surprises here: Governor Stephen Poloz and the Bank of Canada (BoC) will not be lowering or raising the key interest rate, leaving it at 0.5%.

A molasses-like economy and mounting debt across the country has made the chances of a rate hike in the near future unlikely, as lower rates would lead to Canadians taking on even more debt. The federal government introduced new mortgage rules this week that should help prevent people taking on mortgage debt that they can’t really afford.

Instead of simply needing to qualify for the especially low rates being offered by lenders, those applying for certain insured mortgages will need to qualify for the higher BoC posted rate. This rule makes it possible for the BoC to hold off on raising rates for a while longer without leading to a disastrous housing correction.

Apart from the interest rate announcement, the BoC also released their quarterly monetary policy report, which gives greater insight into what we should expect from the economy for the next several months.

The global outlook is positive, with the BoC expecting momentum to pick up in the latter half of the year after a slow start. Canada’s economy is expected to grow faster in the second half of 2016 thanks to federal fiscal measures. The BoC expects the real GDP to grow by 1.1% this year, 2%, in 2017 and 2018, and return to full capacity in mid 2018. This lines up with projections that the BoC will slowly begin raising interest rates over the next 2 years.

Much like the Federal Reserve did in the U.S., the  BoC is likely waiting for a strong, stable economy before raising rates. Rules have changed in regards to insured fixed-rate mortgages in order to protect buyers from a shock once rates rise. So if you’re looking to buy a house and find you’re not qualifying for the size of mortgage you want, you may be wise to hold off or opt for something smaller right now.