Clinton Wilkins joins CityNews with Rob Snow to talk about the latest Bank Of Canada Update for January 2024. Clinton provides some insight on what no movement of interest rates means for mortgage lenders
In a recent post, I talked about what the Bank of Canada is. I also discussed its major areas of responsibility, its importance, and how it reacts to inflation. Rates have remained relatively unchanged. The Bank of Canada has been dropping clues that there is a strong chance of an interest rate hike at its next meeting in July.
In a recent announcement, the Bank of Canada noted that inflation has been close to its two percent target. This will likely be higher than forecast in the near term. It also referenced recent data points that show upside to the U.S. economic outlook, weighed by ongoing uncertainty about NAFTA negotiations and stresses in some emerging markets.
“Overall, developments since April further reinforce the governing council’s view that higher interest rates will be warranted to keep inflation near target,” the bank noted in its release. “Governing council will take a gradual approach to policy adjustments, guided by incoming data.”
Observations by experts
Observers noted the tone of the BoC’s statement was more aggressive than previous announcements. It omitted the line “some monetary policy accommodation will still be needed to keep inflation on target.” The Bank of Canada used the word “cautious” in reference to future policy announcements. It also introduced the term “gradual” to describe the approach to policy adjustments.
“The statement was much more hawkish than the market anticipated, especially after the early week global financial market gyrations,” wrote BMO economist Benjamin Reitzes in a research note. “This is a clear warning shot that a July rate hike is a solid possibility.”
The market consensus is that two more hikes are still on the way this year. BMO is predicting those to come in July and October.
“While we may need a grammarian to distinguish between ‘cautious’ and ‘gradual,’ the message was nevertheless clear: get ready for another rate hike,” wrote TD bank senior economist Brian DePratto. “Gone are concerns about potential slack. This reinforces our view that as the economy continues to perform well into the middle of the year, the bank will have the confidence it needs to raise its policy interest rate at its next scheduled decision, this July.”
Possible implications for rates
The rate hold through to at least July is at least a temporary reprieve for existing adjustable-rate mortgage holders. They have already seen their monthly payments increase by about $35 per $100,000 of mortgage since the BoC started raising rates last July.
Despite steadily rising fixed mortgage rates over the past year, and recent increases to the big banks’ posted rates earlier this month, there are hopeful signs for fixed-rate shoppers that rates are about to pull back a little bit.
The market recently saw a sharp drop in 5-year fixed bond yields. They fell nearly 30 bps from their 7-year high reached two weeks ago. Since bond yields lead fixed mortgage rates, mortgage hunters are seeing fixed rates dropping slightly this week.
But as mortgage planner David Larock noted in his blog post this week, “To borrow a famous quote about stock prices, fixed mortgage rates tend to take the elevator when they go up and the stairs when they go down.”