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At the end of May, the Bank of Canada announced that they’d keep their overnight rate at 1.25%, despite major Canadian banks raising their own rates recently.

The Bank reported that while the US economy outlook seems generally positive, uncertainty still exists because of volatile trade policies, negotiation, and rhetoric. This, of course, reduces global business investment.

The Canadian economy also seems positive, with the following notable highlights from the first quarter of 2018:

  • Exports of goods were more robust than forecast
  • Machinery and equipment import data suggest continued recovery in investment
  • Housing resale activity has remained soft, as the market adjusts to new mortgage guidelines and higher rates
  • Solid labour income growth, which suggests housing activity will pick up

As a result of Canada’s improving economy, the Bank cautioned “that higher interest rates will be warranted to keep inflation near target”, which is already close to the 2% target. That means we could see increases to the Bank of Canada’s overnight rate, as soon as July even, according to Benjamin Reitzes, Canadian rates and macro strategist, BMO Capital Markets:

“The statement was much more hawkish than the market anticipated, especially after the early week global financial market gyrations. This is a clear warning shot that a July rate hike is a solid possibility.”

Reitzes also indicated that we could potentially see a second increase before the end of the year, possibly October.

With two potential rate increases over the next 4 months, borrowing costs will likely rise as well. This is particularly true for variable mortgages, but will also affect new fixed mortgage rates.

If you’re thinking of purchasing a new home soon, have an existing mortgage that is coming up for renewal, or want to switch from a variable mortgage to a fixed one, contact us today. We can discuss your situation and find a solution that takes advantage of current rates while ensuring you get in (or stay in, for that matter) a home you love without having to pay more than you need to.

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