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As expected, the Bank of Canada announced today that is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The Bank also lowered its growth forecasts, but made a surprising statement by suggesting rates will stay on hold. Among the reasons for making that decision it pointed out to factors like the “global economic recovery entering a new phase.”
In advanced economies, temporary factors supporting growth in 2010 – such as the inventory cycle and pent-up demand – have largely run their course and fiscal stimulus will shift to fiscal consolidation over the projection horizon. While the Bank expects that private demand in advanced economies will become sufficiently entrenched to sustain the recovery, the combination of difficult labour market dynamics and ongoing deleveraging in many advanced economies is expected to moderate the pace of growth relative to prior expectations. These factors will contribute to a weaker-than-projected recovery in the United States in particular. Growth in emerging-market economies is expected to ease to a more sustainable pace as fiscal and monetary policies are tightened. Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery.
The Bank expects the economic recovery for Canada to be more gradual than it had projected in its July Monetary Policy Report. The bank lowered its 2010 growth forecast to 3.0 percent from the 3.5 percent it forecast in July, and its 2011 forecast to 2.3 percent from 2.9 percent. It raised its prediction for growth on 2012 to 2.6 percent from 2.2 percent. This new projections takes into account both the sluggish global economic recovery and a decline in housing activity that will undoubtedly affect household debt.
The Bank now expects household expenditures to slow down to a pace closer to the rate of income growth. Overall, the composition of demand in Canada is expected to shift towards business investment and net exports that will be sensitive to currency movements against the dollar, productivity growth, and external demand.
Inflation in Canada has kept below the Bank’s July projection and the outlook has been revised down. Core inflation, which strips out volatile items and the effects of tax changes, was 1.6 percent in August, while overall inflation was 1.7 percent. Both total CPI and core inflation are now expected to converge to 2 per cent by the end of 2012, as excess supply in the economy is gradually absorbed and inflation expectations remain well-anchored. September’s inflation figures will be released on Friday.
The Bank of Canada concluded that,
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada.
At this time of transition in the global recovery, with a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies, and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered.
Several analysts have suggested that rate hikes could take place again not sooner than March next year and as late as the end of 2011.
Housing Resales Up 3% in September
Canadian existing home sales rose in September for a second straight month while average prices reversed the falling trend with a 1.9% increase from August, the Canadian Real Estate Association said in its latest report.
Seasonally adjusted unit sales rose to 33,913 homes from 32,933 units in August, the group said. Sales in September were 20 percent below year-ago levels and the average price for a home was little changed at C$331,089 ($329,180), the group added.
“Supply and demand are rebalancing, and that’s keeping prices steady in many markets,” said Georges Pahud, president of CREA.
The interest-rate environment continues to help the housing market. While the prime lending rate has jumped after the Bank of Canada raised its overnight lending rate three times since June to 1 percent from a record 0.25 percent, long-term rates continue to fall. Canada’s mortgage rates are now close to the lowest since the Korean War The central bank said in July it expects housing to contribute 0.6 percentage point to Canada’s 3.5 percent growth this year.
Most analysts now expect the Bank to hold off on any further rate hikes this year while it gauges the effects of recent tightening on the domestic economy, and watches the very uncertain situation south of the border. However, the overall tone of the Bank’s statement was more hawkish than expected, and this has led some economists to suggest this may not be the last hike of the year. Much will depend on economic data out over the next month and a half in advance of the Bank’s next decision on October 19th.
“Mortgage lending rates eased in the third quarter, which helped support sales activity over the past couple of months,” said Gregory Klump, chief economist with CREA. “Interest rates are going nowhere fast, so home ownership will remain within reach for many homebuyers.”
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BMO lowers residential mortgage rates
BMO Bank of Montreal announced today it is decreasing its residential mortgage rates, effective today October 13, 2010.
According to their press release, fixed rates have been lowered across the board by 10 basis points (or 0.1 per cent).
The new rates stand now as follows:
Special Offers*
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To:
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Change:
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4 year fixed closed
|
3.79%
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-0.10% |
5 year low rate fixed closed
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3.49%
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-0.10% |
5 year fixed closed
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3.89%
|
-0.10% |
7 year fixed closed
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4.75%
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-0.10% |
10 year fixed closed
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4.85%
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-0.10% |
Please view the Mortgage Girl’s CURRENT BEST MORTGAGE RATES on the right side bar for a comparison of rates.
The Mortgage Girl team takes pride in providing our clients with the best rates available anywhere in Canada.
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Fixed Rates: |
To: |
Change: |
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6 month fixed convertible |
4.45% |
-0.10% |
|
6 month fixed open |
6.30% |
N/C |
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1 year fixed open |
6.30% |
N/C |
|
1 year fixed closed |
3.20% |
-0.10% |
|
2 year fixed closed |
3.45% |
-0.10% |
|
3 year fixed closed |
4.00% |
-0.10% |
|
4 year fixed closed |
4.94% |
-0.10% |
|
5 year low rate fixed closed |
5.29% |
-0.10% |
|
5 year fixed closed |
5.29% |
-0.10% |
|
6 year fixed closed |
5.70% |
-0.10% |
|
7 year fixed closed |
6.30% |
-0.10% |
|
10 year fixed closed |
6.40% |
-0.10% |
|
18 year fixed open |
8.85% |
N/C |
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The interest rate for a fixed rate mortgage is calculated half-yearly not in advance.
*These special discounted rates are not the posted rates of BMO Bank of Montreal.
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Reading between the lines, this decrease seems to be the logica reaction to the poor state of the US economy. Bond interest rates have fallen as the Federal Reserve prepares to provide further stimulative measures.
“The (bond) market expects the Federal Reserve to undertake more stimulative measures to reduce long-term interest rates, most likely by purchasing treasury notes in the coming months,” said Sal Guatieri, a senior economist with BMO Capital Markets.
Moneyville anticipates some side-effects for consumers:
“While it is unclear how low mortgage rates will ultimately go, some observers suggest that bond yields could dip further over the coming months. That could be a boon for consumers in a slowing housing market.”
Toronto-Dominion Bank later matched BMO’s posted rate of 5.29 per cent for a five-year closed mortgage, also effective Wednesday. Other retail banks are expected to follow suit during this week.
Interest Rates Forecasts from the Big 5
Canadian Mortgage Trends has just published a compilation of Canadian interest rates forecasts for the last part of 2010 from each of Canada’s Big 5 banks.
The “Big Five Banks” is a colloquial expression for the five biggest banks that dominate the banking industry in Canada (Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce).
All 5 Banks are classified as Schedule I banks, that is, domestic banks that operate in Canada under government charter, and they are all operationally headquartered in Toronto, Ontario. The banks’ shares are widely held, with any entity allowed to hold a maximum of twenty percent.
Below you’ll find a summary of their latest year-end interest rate projections
(For a more detailed summary and more information, please visit the original post from Canadian Mortgage Trends at:
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/10/canadian-interest-rate-forecast.html):
Latest Overnight Rate Forecast
Bank 2010 2011
BMO 1.00 2.25
CIBC 1.00 1.75
RBC 1.00 2.25
Scotia 1.00 1.75
TD 1.00 2.00
Year-end Avg 1.00 2.00
Chg vs Today 0.00 +1.00
(All figures rounded to the nearest 1/4 point increment.)
Latest 5-Year Government Bond Yield Forecast
Bank 2010 2011
BMO 2.03 3.05
RBC 2.45 3.50
Scotia 1.85 2.50
TD 2.30 3.10
Year-end Avg 2.16 3.04
Chg vs Today +0.29 +1.17
(CIBC’s 5-year bond forecast was not available.)
Variable-Rate Mortgage Forecast
Most analysts now expect 5-year variable rates in the 3.25% range by year-end 2011.
Fixed-Rate Mortgage Forecast
Banks forecasts suggests deep-discounted 5-year fixed rates could rise to roughly 4.24% by year-end 2011.
Below you’ll find a summary of the latest year-end interest rate projections from each of Canada’s Big 5 banks. Use them only as a rough guide because rate outlooks have considerable margins of error.
Latest Overnight Rate Forecast
The Bank of Canada’s overnight target has a direct impact on variable mortgage rates.
Bank 2010 2011 BMO 1.00 2.25 CIBC 1.00 1.75 RBC 1.00 2.25 Scotia 1.00 1.75 TD 1.00 2.00 Year-end Avg 1.00 2.00 Chg vs Today 0.00 +1.00
(All figures rounded to the nearest 1/4 point increment.)
Latest 5-Year Government Bond Yield Forecast
Government bond yields drive 5-year fixed mortgage rates.
Bank 2010 2011 BMO 2.03 3.05 RBC 2.45 3.50 Scotia 1.85 2.50 TD 2.30 3.10 Year-end Avg 2.16 3.04 Chg vs Today +0.29 +1.17 (CIBC’s 5-year bond forecast was not available.)
Variable-Rate Mortgage Forecast
Most analysts now expect the Bank of Canada to remain on the sidelines until 2nd quarter 2010. On average, major economists now predict a 100 basis point increase in the overnight rate over the next 15 months. Their outlooks, if accurate, imply a 4.00% prime rate by December 31, 2011. Prime rate is currently 3.00% and the 10-year average of prime is 4.50%.
Based on a 75-basis-point discount from prime, these forecasts suggests 5-year variable rates in the 3.25% range by year-end 2011.
Fixed-Rate Mortgage Forecast
Banks foresee 5-year bond yields climbing 117 basis points in the same 15-month timeframe. That would put the 5-year yield at 3.41% by the end of next year. The 10-year average of the five-year yield is 3.93%.
Assuming a typical 120 basis point spread above yields, these forecasts suggests deep-discounted 5-year fixed rates could rise to roughly 4.24% by year-end 2011.