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Bank of Canada keeps rates at 0.25%, despite vaccine developments (December 2020 update)

The Bank of Canada today announced it will be keeping the target for the overnight rate at “the effective lower bound” of 0.25%, where it has been for the majority of 2020.

In its statement, the central bank outlined a mixed forecast for the Canadian economy but predicted that future Bank of Canada interest rate hikes, or adjustments to its quantitative easing program, were unlikely any time soon.

The bank said that while news of several successful COVID-19 vaccines has increased the economic outlook, delays in widespread vaccination and a recent surge in Canadian case numbers means it will still be some time before the economic impact of the vaccine is felt.

James Laird, co-founder of and President of CanWise Financial mortgage brokerage, says the Bank is still optimistic about the future.

“The Bank’s statement struck an optimistic, but cautious tone. The Bank seems pleased with the economic rebound in the third quarter, the increasing price of oil and the progress towards a vaccine rollout”, James says.

“Despite these positive signals, the Bank has reaffirmed its commitment to provide monetary support until the recovery is well underway, which they still expect to be sometime in 2023.”

The Bank said that while inflation has increased to 0.7%, which shows some positive growth in the Canadian economy, it will likely hold rates at 0.25% until inflation reaches the 2% target. As such, we can expect the Bank of Canada interest rate to remain unchanged for the foreseeable future. 

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How does this affect mortgage borrowers?

James says the continuation of record low rates is generally good news for borrowers.

“Anyone who requires a mortgage should be pleased with this announcement because the Bank continues to be committed to low rates for the foreseeable future. Both fixed and variable rates will remain at their current historic lows until the economic recovery is well under way, which should occur shortly after the vaccine has been broadly rolled out.

“The stronger and quicker the economic recovery, the faster rates will move up. For anyone who is optimistic about the recovery, locking in with a fixed rate is the best strategy. For anyone who believes the recovery will be long and slow, a variable rate might be appropriate.”