The Bank of Canada (BoC) has once again elected to leave the key interest rate untouched. The central bank has kept this rate, also referred to as the target for the overnight rate, at 1.00 per since September of 2010.
Mark Carney has stated that he would like to raise the key interest rate soon in an effort to deter Canadians from taking on more debt. Ultra-low mortgage interest rates artificially inflate long-term affordability and incentivize consumers to borrow money. Unfortunately, Canadians have been taking on household debt to a record 163 per cent debt-to-income ratio. This has caused the Bank of Canada governor to label it as the greatest domestic threat to the economy.
“In Canada, while global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion. Following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013,” said the the Bank of Canada in their release this morning. The central bank also believes household debt will continue to grow. “Housing activity is expected to decline from historically high levels, while the household debt burden is expected to rise further before stabilizing by the end of the projection horizon.”
Lenders use the key interest rate to set their prime lending rates. For example, if the key interest rate were to increase by 0.25 per cent, lenders would make a comparable rate increase to their prime lending rate. Fortunately for variable rate mortgage holders, the key interest rate remained at 1.00 per cent, leaving their mortgage rate unharmed. Currently, the best 5-year variable rate available on RateHub.ca is Prime – 0.45 or 2.55 per cent.
Here is a chart of what the prime lending rate is currently listed at for Canada’s five largest banks:
|Major Canadian Bank||Prime lending rate|
|Bank of Montreal||3.00%|
|TD Canada Trust||3.00%|
The central bank will make one more interest rate announcement before the end of the year on December 4th, 2012.