Bank of Canada maintains policy rate

General Robyn McLean 26 Jan

Today’s Bank of Canada announcement.

FOR IMMEDIATE RELEASE
Media Relations
Ottawa, Ontario
January 26, 2022

The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ %, with the Bank Rate at ½ % and the deposit rate at ¼ %. With overall economic slack now absorbed, the Bank has removed its exceptional forward guidance on its policy interest rate. The Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds roughly constant.

The global recovery from the COVID-19 pandemic is strong but uneven. The US economy is growing robustly while growth in some other regions appears more moderate, especially in China due to current weakness in its property sector. Strong global demand for goods combined with supply bottlenecks that hinder production and transportation are pushing up inflation in most regions. As well, oil prices have rebounded to well above pre-pandemic levels following a decline at the onset of the Omicron variant of COVID-19. Financial conditions remain broadly accommodative but have tightened with growing expectations that monetary policy will normalize sooner than was anticipated, and with rising geopolitical tensions. Overall, the Bank projects global GDP growth to moderate from 6¾ % in 2021 to about 3½ % in 2022 and 2023.

In Canada, GDP growth in the second half of 2021 now looks to have been even stronger than expected. The economy entered 2022 with considerable momentum, and a broad set of measures are now indicating that economic slack is absorbed. With strong employment growth, the labour market has tightened significantly. Job vacancies are elevated, hiring intentions are strong, and wage gains are picking up. Elevated housing market activity continues to put upward pressure on house prices.

The Omicron variant is weighing on activity in the first quarter. While its economic impact will depend on how quickly this wave passes, it is expected to be less severe than previous waves. Economic growth is then expected to bounce back and remain robust over the projection horizon, led by consumer spending on services, and supported by strength in exports and business investment. After GDP growth of 4½ % in 2021, the Bank expects Canada’s economy to grow by 4% in 2022 and about 3½ % in 2023.

CPI inflation remains well above the target range and core measures of inflation have edged up since October. Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022. As supply shortages diminish, inflation is expected to decline reasonably quickly to about 3% by the end of this year and then gradually ease towards the target over the projection period. Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target. The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation.

While COVID-19 continues to affect economic activity unevenly across sectors, the Governing Council judges that overall slack in the economy is absorbed, thus satisfying the condition outlined in the Bank’s forward guidance on its policy interest rate. The Governing Council therefore decided to end its extraordinary commitment to hold its policy rate at the effective lower bound. Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.

The Bank will keep its holdings of Government of Canada bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. At that time, the Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.

Information note

The next scheduled date for announcing the overnight rate target is March 2, 2022. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report on April 13, 2022.

 

Interest rate anticipation runs high

General Robyn McLean 24 Jan

As the first Bank of Canada announce approaches, all eyes are on interest rates. Here’s some solid insight on the issues at hand from our friends at First National.

Interest rate anticipation runs high

Market watchers have their gaze firmly fixed on January 26th.  The Bank of Canada will make its first rate announcement of 2022 and deliver its first Monetary Policy Report for the year.

The key factors that are top-of-mind ahead of the announcement are inflation and what the central bank will do about it.

There has been a rising chorus of calls for the Bank to start increasing interest rates in an effort to quell generationally high inflation, which is now running at 4.8%.  Many analysts and economists expect the BoC will do that on the 26th, even if it is just to provide reassurance that the Bank is prepared to act.  They point out that the broader economy no longer needs stimulus and support, and the labour market is strong.

From the Bank’s point of view, a prime consideration is warding off “inflation expectations”, which could trigger a self-fueling inflation spiral of higher consumer demand, higher prices, higher wage demands, and so on.

But there are solid reasons for the central bank to stick with its stated plan to wait until at least March to start raising rates.  Chief among them is the Omicron variant, which is currently befuddling all efforts to keep the overall economy on track.

Further, the exact start date of interest rate hikes is not as important as where the increases take the economy over the next year or two, and that is what the Bank of Canada is really trying to manage.

  • Jan 24, 2022
  • First National Financial LP

There Are Fewer Homes For Sale Now Than Any Time In Canadian History: CREA

General Robyn McLean 20 Jan

Some interesting data from our friends at REW and the CREA. What’s in store for 2022? Read on to see…

December rounded off 2021 with a record-breaking lack of homes for sale on the market, pushing red-hot conditions into the new year.

The latest data from the Canadian Real Estate Association (CREA) reports that with only 1.6 months of inventory available on the market last month, December 2021 tops the list for the month with the least amount of inventory in Canadian history. This means that if no new homes came onto the market, we’d completely sell out at our current pace before March Break.

Previously, the record low was 1.8 months, as seen in March and November of 2021. Before last year, there hadn’t been a month dip below 2 months of inventory, and in 2021 almost half of the year was spent below this benchmark.

It’s clear that record-low inventory levels are continuing to drive the separation between extremely low supply and strong consumer demand.

A total of 35,971 transactions took place in the month of December across the country, which is -9.9% below the record set in 2020. As was the case with most of the later months in 2021, although the sales were below last year’s peak, they were still the second-highest on record. High demand for housing coupled with record-low supply continues to drive prices higher, as the national MLS Home Price Index Benchmark reached $811,700, an increase of 26.6% or $150,000 from a benchmark of $661,700 this time last year.

New listings did not keep up with the seasonally-heightened level of transactions seen last month, as the national sales-to-new-listing ratio (SNLR)  climbed to 79.7%. Almost two-thirds of CREA’s reported local markets were recorded as being a seller’s market (SNLR above 70%) with the remaining one-third of markets being recorded as a balanced market (SNLR between 40-60%).

Ultra-Low Listings In Early 2022 Set the Stage for a Hot Spring Market

Looking at 2021 in its entirety, a total of 666,995 residential properties traded hands over the year. This was a new record by a considerable margin, up 20% from the previous record set in 2022 and 30% from the ten-year average – demonstrating just how high sales demand has been this year, and how inventory is struggling to keep up.

And while sales volumes have decreased in the latter half of 2021 compared to the year prior, it’s clear that the extremely-low supply levels on the market are constraining the total number of transactions, as buyers quickly snatch up any new properties that hit the market.

According to industry experts, we can expect this trend to continue into 2022. “With the housing supply issues facing the country having only gotten worse to start 2022, take any decline in sales early in the year with a grain of salt because the demand hasn’t gone away, there just won’t be much to buy until a little later in this spring” said Cliff Stevenson, Chair of CREA.

“But when those listings eventually start to show up, the spring market this year will almost certainly be another headline grabber. If you’re thinking about jumping into the market as either a buyer, seller or both, your local REALTOR® has the information and guidance you’ll need to navigate the market in these unprecedented times,” continued Stevenson

Do you know the difference between a variable rate mortgage and an adjustable rate mortgage?

General Robyn McLean 19 Jan

Subtle differences in your mortgage term can mean big differences in payment amount and how long it takes you to pay off your mortgage. Are you aware that a variable rate mortgage (VRM) is different from an adjustable rate mortgage (ARM)?

While both are tied to Prime – the key lending rate set by the Bank of Canada – a variable rate mortgage (VRM) is one where the interest rates change with the market but the monthly payments are always the same.* When the Prime rate changes, more of your monthly payment goes towards interest and less towards principle. Some people like this feature because their monthly payment is predictable and they won’t have to worry if the interest rates rise, that the payments will suddenly increase. On a fixed income this can be appealing however keep in mind that each time the Prime rate rises, it will take you longer to pay off your mortgage.

An adjustable rate mortgage (ARM) is one where the monthly payments can change when the interest rate changes. So, if the Prime rate goes lower, then the monthly mortgage payments will be lower too. But if the Prime rate goes higher, then the monthly mortgage payments will also go higher.

For more information on what term is best for you, always discuss your options with a mortgage professional.

* A VRM will have a “trigger” rate where mortgage payment is no longer sufficient to maintain the new interest payment. At that time, you will be notified by your lender that you regular mortgage payment will be changing.

 

Canadians prefer interest increases over inflation

General Robyn McLean 19 Jan

Interesting insight from our friends at First National. Which do you fear more, rising interest rates or increasing inflation?

Inflation is running at generational highs in this country, and that is a bigger concern for Canadians than higher interest rates.

Canada’s headline inflation rate – the Consumer Price Index – is currently running at just below 5%.  That is the highest level in nearly 20 years.  The most recent numbers out of the U.S. put the rate there at 7% which is a 40 year high.

A Nanos poll taken for Bloomberg News late last month suggests a majority of Canadians would prefer to see the Bank of Canada increase interest rates, in an effort to rein-in rising costs, rather than let inflation get any higher.

The poll found 87% of those surveyed are more concerned about the pace of rising prices that they are about higher interest rates.  Ten percent are more concerned about higher borrowing costs.

Given the level of Canadian household debt the results might seem counter-intuitive.  Fifty-one percent of respondents say they will likely face, at least, some negative impact from higher interest rates.

This might be explained by a generational divide that showed up in the poll.

“Younger Canadians are much more likely to report a negative sensitivity to higher interest rates compared to middle-aged and older individuals,” says Nik Nanos, founder of the Nanos Research Group.

Analysts point out, though, that interest rate increases may cool spending and reduce the demand for debt, such as mortgages, but they will not resolve key inflation drivers like constrained production and supply chain slowdowns.