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Bank of Canada overnight rate holds at 0.25%, could hold until 2023 (Jan 2021 update)

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The Bank of Canada today announced that it will be holding the key overnight rate at 0.25 percent. It reiterated that this was the “effective lower bound” for the rate, despite suggestions that a micro-cut could be considered.

The key overnight rate was slashed to 0.25% in early 2020 in response to the coronavirus pandemic and has remained at that level ever since.

Delayed recovery

James Laird, co-founder of Ratehub.ca and President of CanWise Financial mortgage brokerage, says that while the Bank is still expecting a strong economic recovery after a vaccine rollout, it has pushed back its recovery timeline due to new lockdown measures in some of Canada’s big cities.

“With the spread of the virus and reinstatement of lockdown measures, the Bank is anticipating an economic decline in the first quarter of 2021,” James says.

“The Bank is optimistic for a strong economic recovery assuming an effective vaccine roll out in Canada and around the world.”

James says that he expects the Bank will not increase rates until 2023.

“The Bank made no mention of a ‘micro-cut’ reduction to the key overnight rate in the months ahead. The Bank’s monetary policy remains unchanged from their previous announcements, therefore we should expect the quantitative easing program to remain in place and the key overnight rate to hold until 2023.”

How does this affect mortgage borrowers?

James says that a continuation of historically low mortgage rates is good news for borrowers.

“Consumers should expect fixed and variable rates to remain at their current historic lows until 2023. Anyone with a variable rate mortgage or home equity line of credit (HELOC) should be pleased that their prime will remain unchanged, although they would have been ecstatic had the Bank implemented a ‘micro-cut’.

“Anyone shopping for a home should get a pre-approval which will hold today’s fixed rates for up to 120 days and allow them to move quickly in the competitive spring market.”

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