Variable-rate mortgage holders have a reprieve — the BOC interest rate is staying steady at 1%, despite rumours another increase was looming.
The Bank of Canada announced October 25, 2017 that BOC interest rates would not be increasing further right now.
Inflation has increased, but the BOC said it hasn’t gone up as much as predicted. A slowing housing market and high debt levels have the BOC leaning more towards caution. The Bank cited new OSFI regulations introducing a mortgage stress test for uninsured mortgages as another reason for staying steady.
But what does this mean for homeowners? Bank of Canada Governor Stephen Poloz shared his take with CBC.
First-time homebuyers are taking on “hefty mortgages because of hot housing markets,” Poloz told CBC.
“Because of all that debt, we aren’t as sure as we normally would be what would be the response of the economy to a higher rate of interest,” Poloz said.
Poloz said there will likely be further interest rate increases in the future, but he didn’t have a timeline for when that would happen.
In adjusting its interest rates, the Bank of Canada will pay close attention to four areas: the impact of interest rates on households in debt, the economy’s capacity, wage growth, and inflation.
BOC predicts inflation will rise another 2% in the second half of 2018. The Bank “estimates that the economy is operating close to is potential. However, wage and other data indicate that there is still slack in the labour market. This suggests that there could be room for more economic growth than the Bank is projecting without inflation rising materially above target.”
Also on October 25 the Canadian dollar fell to a more than three-month low against the U.S. dollar. The Canadian dollar has gone down by 5.3% since peaking on September 11, but is still up 7.5% since its lowest closing rate on May 4.
Economists are predicting further hikes likely won’t happen until the first quarter of 2018. The next BOC interest rate announcement is scheduled for December 6, 2017. Perceived chances of another hike by the end of 2017 fell from 37% before the October 25 announcement to less than 30% afterwards.
Some say the interest rate pause could mean financially secure mortgage holders may have a reprieve — their short-term fixed or variable-rate mortgages could be saving them money. But there are still two wildcards: first, the new OSFI mortgage stress test rules. Economists are uncertain how this will affect the economy, and even the Bank of Canada approached it with caution.
Second, economists are at odds on how much the BOC interest rates will increase in 2018. Some are predicting 50 bps, while others still say it will be 100 bps.
Purview has the tools you need to reliably stress-test your portfolio as further changes come down the pipeline.