What is the Bank of Canada Rate?

It is a rate which is currently at 1% that the government lends to the bank. The bank, in turn, lends to the public at 3% which is called the prime lending rate. The prime lending rate affects everyone who has secured or unsecured lines and variable rate mortgages.

The Bank of Canada Rate is a mechanism to control inflation in this country. Mortgage rates are controlled by the bond and the stock market.  Thus, the Bank of Canada and mortgage rates are not the same. Mortgage rates change more often than the Bank of Canada rate. The Bank of Canada Rate usually stays the same for 4-6 months and sometimes it may be longer.

The Bank of Canada is represented by Stephen Poloz and it is expected that the Bank of Canada Rate (known as prime) will remain the same until the beginning of 2015.

The Bank of Canada Rate will remain the same for the following reasons.

1. Indeed inflation has gone up and Canadians are feeling the pinch on gas and food prices. However, the inflation rate has not passed the desired thresholds that will trigger an increase anytime soon.
2. The Canadian dollar is still strong which is good for us to buy American Dollars or Euros. But it is not good for the manufacturing sector since our exports are affected by the dollar. A stronger dollar means less exports are being made. People who work in the factories are seeing that things are indeed slower.
3. Also, if the Bank of Canada rate goes up, the foreign investors like it and it in turn increases the Canadian dollar.
4. But if the Prime lending remains low, the real estate market will be strong since a lot of people are able to buy, and or renovate. So the construction sector is strong.
5. Although our economy is stronger among the G8 Group, we are still affected on what happens worldwide. We are not immune. So things that happen in Europe, Asia and the United States do have a ripple effect in Canada.

But with a majority government in Ottawa, the Bank of Canada doesn’t want to increase prime too soon. So for now, anyone who has a variable rate mortgage, STICK WITH IT. 

Always be an informed client.

For more information contact your Toronto Mortgage Broker 

at 416-920-9931

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