Bank of Canada Does the Right Thing, Maintains Overnight Rate Jan 2019

Bank of Canada Overnight Rate Holds Steady - January 2019

As many analysts have been saying, including myself, and much smarter people than me, like Martin Pelletier, have written, the Bank of Canada's very bullish tone up until recently, wasn't supported by much of the economic data in our country, or internationally.

Here's the official announcement from the Bank of Canada:

Bank of Canada overnight rate maintains target at 1 ¾ per cent

Let's recap the reasons why The Bank of Canada overnight rate is not increasing:

• The Canadian dollar did poorly in 2018 and sits at about 75 cents US
• Canadian Bond yields have collapsed and are 50 basis points below the October 30th number
• The investment markets did poorly in 2018
• The housing market is in the midst of a self-inflicted gunshot wound at the hands of the federal government, OSFI, CMHC, and a variety of stupid city councils
• The Canadian energy market is chasing away investors with a stick - another self-inflicted dagger to the heart at the hands of government - and can't sell its product unless at a major discount
• Employment growth nationally is within the margin of error of zero percent growth and most jobs created are part-time
• The US FED has indicated that further rate hikes may slow down

What Can We Expect from the Bank of Canada Overnight Rate in 2019?

Who knows? If economic data improves, if jobs are strong, if inflation picks up, if household incomes improve, and most importantly - if the US Federal Reserve increases rates - then we could be in for more rate increases.

If none of those things happen, or even worse, if conditions continue to deteriorate as they have for several months now, then we could expect potential rate decreases and that will likely be necessary to stimulate the economy and avoid disaster. Only time will tell!

How Will the Bank of Canada Overnight Rate Announcement Affect My Mortgage?

The Bank of Canada overnight rate has a direct impact on the Prime Rate from banks. For variable or adjustable rate mortgage holders this announcement means a reprieve from the nearly constant rate hikes over the past year or so, and allows you to rest easy knowing that another hike is not necessarily imminent.

For fixed-rate mortgage holders the reality is that rates have gone up quite a bit since the bottom (about 1.25% or more) but that rates are currently over-priced. This is not uncommon: when bond yields increase, rates go up quickly...but banks are generally more hesitant to adjust their rates downward when bond yields fall. As of right now it appears that demand is soft enough that banks and other Canadian mortgage lenders are not in a hurry to compete on price.