The Bank of Canada holds at 0.50% on October 19, 2016. Housing measures and export weakness lower the growth path.
The decision at a glance
| Policy measure | Announcement |
|---|---|
| Overnight target | 0.50% |
| Change | No change |
| Bank Rate | 0.75% |
| Deposit rate | 0.25% |
Housing measures and export weakness lower the growth path
The Bank cuts its growth forecast, not its policy rate. It now projects 1.1% growth in 2016 and about 2% in both 2017 and 2018. Exports have not recovered enough to make up for earlier losses, and slower housing resale activity is another restraint. The economy is not expected to reach full capacity until around mid-2018.
New federal housing-finance measures affect both sides of the decision. They are expected to moderate residential investment in the near term while reducing financial vulnerabilities over time. Meanwhile, resource investment appears to be bottoming out and non-resource services activity is growing, so the national picture is not uniformly weak.
Core inflation near 2% still masks unused capacity, while temporary weakness in gasoline, food and telecommunications prices lowers headline CPI. The Bank leaves the rate unchanged while assessing a more uncertain outlook. Buyers need to check their actual qualification and approval conditions under the applicable lending rules; a stable overnight rate does not mean the borrowing process is unchanged.
What this means for a mortgage
The overnight target influences short-term borrowing costs, including lender prime rates. Variable mortgages and home-equity lines of credit are more directly exposed to prime-rate changes. Fixed mortgage offers also depend on bond yields, funding costs, the term and lender competition; they can move even when the Bank holds.
The Bank of Canada’s Weekly Financial Statistics bulletin of October 14, 2016 reports the October 12 posted reference rates below. These are typical posted rates at six major chartered banks, not discounted offers or an assurance of the rate a borrower can obtain. They should not be read as proof that a lender has already passed through today’s decision.
| Posted reference | Rate |
|---|---|
| Prime | 2.70% |
| One-year conventional mortgage | 3.14% |
| Five-year conventional mortgage | 4.64% |
Payment illustration: a $300,000 mortgage amortized over 25 years at the 4.64% posted five-year rate is approximately $1,684 per month for principal and interest, using Canadian semi-annual compounding. This is an illustration, not a lender quote. Taxes, insurance, utilities, closing costs and qualification requirements are separate.
Put the announcement into a Greater Sudbury plan
Buying or renewing
If you’re buying or renewing in Greater Sudbury, I’d ask for written figures using your balance, down payment and amortization. Compare payment mechanics, prepayment options, penalties and the cash left after closing. A variable mortgage with fixed payments may change how much principal you repay instead of changing the payment immediately; the contract determines the result.
Preparing to sell
Financing affects what buyers can carry, but it does not set one price for every home. Compare recent sales and active alternatives in the same neighbourhood and price range. Condition, carrying costs, presentation and offer terms remain central to the decision.
Official announcement: Bank of Canada, October 19, 2016. The national policy decision does not, by itself, establish a change in Greater Sudbury property values.
For a local plan, explore the Buyer Experience or Seller Experience. For the preceding decision, see September’s rate decision.
Expect Moore for Your Real Estate.
— Chad Moore, REALTOR®
— Lake City Realty Ltd., Brokerage