rates
PRICE CHANGES REMAIN TAME; FOR RATES, IT’S MORE OF THE SAME With consumer price inflation squarely in the Bank of Canada’s target range, and economic growth muted, interest rates remain near their historical lows.
Interest rates continue to trend at relatively low levels after moving upwards toward the end of 2016 and through 2017. Fundamentally, this is due to the nature of inflation trends, with the most recent year- over-year change in the Consumer Price Index (CPI) sitting at 1.86%. This puts it just below the midpoint of the Bank of Canada’s (BoC’s) target range for inflation of 1% to 3%, with inflation exclusively remaining within this range over the past five years, save for a dip in early-2015 due to a collapse of energy prices. This stability is good for the Canadian economy. With price inflation low and the economy continuing to grow, the BoC halted its interest rate hiking regime at the end of 2018, having kept the overnight target rate at 1.75% since. As part of its most recent rate announcement on December 4, 2019, the BoC commented that “future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against
the sources of resilience in the Canadian economy—notably consumer spending and housing activity.” In other words, don’t expect more cuts in the near-term, barring any really negative economic news. In bond markets, which heavily influence mortgage rates, demand has been relatively strong. With respect to five-year Government of Canada bonds in particular, yields remain at levels equal to about 60% of the recent peak achieved in late 2018. This has reduced fixed mortgage rates, with the five-year CMHC benchmark most recently falling to 4.09% (for borrowers with discounts, their contractual rate would be considerably lower). We’ve been saying that rates would be "lower for longer" for some time now, and despite some upward movement two years ago, they have once again settled near their historical lows. Expect that to continue for the foreseeable future.
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