This morning, the Bank of Canada (BoC) announced it was going to leave its overnight lending rate at 0.75% for another six weeks. It was the first announcement since the BoC made an unexpected rate cut in January, after sitting at 1.00% for nearly 4.5 years.
The cut in January was made in an attempt to shield highly indebted Canadian households who might be affected by the sharp drop in oil prices and decline in the energy sector, and to stimulate the economy as a whole. It was also a signal for banks to drop their Prime rates.
Unfortunately, for homeowners with variable rate mortgages attached to Prime and hopeful borrowers, the banks chose not to follow suit, and instead cut their rates by just 0.15%, from 3.00% down to 2.85%. The additional 0.10% that’s missing could drop our best 5-year variable rate from 2.00% down to 1.90%, which would equate to a savings of $18/month or $1,080 over 5 years on a $400,000 home with 10% down and a 25-year amortization.
Today’s announcement wasn’t particularly news, after Governor Stephen Poloz gave a speech in London last week, stating that “…the downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds”.
As it turns out, things are looking up – slightly, at least. Despite the negative impact from low oil prices, data from 2014 suggests stronger growth in non-energy exports and investments in 2015, and financial conditions overall seem to have eased.
“In light of these developments, the risks around the inflation profile are now more balanced and financial stability risks are evolving as expected. At present, we judge that the current degree of monetary policy stimulus is still appropriate and the target for the overnight rate remains at 0.75%.”
The next interest rate announcement is scheduled for April 15, 2015.