When the Bank of Canada decided last week to keep its benchmark interest rates stable at 1.75%, it signalled the weakening economy makes it unlikely a rate increase is anywhere on the horizon.
“Inflation is not where it should be, we’re not in a deflation mode right now, but inflation is under control and there’s no real need for them to raise interest rates,” North East Mortgages President Terry Kilakos said.
Because many of the economic indicators are pointing downward, this puts the bank in a position where it can’t raise rates. This makes refinancing a more attractive option for some homeowners this year
“A lot of economists are saying that Canada is heading back into another crisis, which is an indicator that rates may drop again,” Kilakos said. “This new norm will probably stay around for a little while, but rates will eventually go up. And when it goes up, people have to be obviously prepared for it.”
So, for now, homeowners shouldn’t worry too much about a sudden jump in rates. While this may be a new normal, if the economy begins a turnaround, they should be ready or a bump in rates.
“But I don’t think it’s going to happen the next couple of years,” he said.
Usually, Canada’s economy runs almost parallel to that of our southern neighbour’s. However, Kilakos said the two economies seem to have gone their separate ways lately.
“There’s a divergence right now that is going to occur between the Canadian and U.S. economies,” he said. “When people talk about the US sneezing and Canada catches a cold—this is not what’s happening right now. There’s a divergence in the interest rates. Where in the States rates are going up, in Canada, rates cannot go up because of the way our economy is actually going.”
The news isn’t all positive for Canadian homeowners though. Read our recent blogs on why too many Canadians are now ineligible for mortgages and why Montrealers in particular will see their municipal tax bills rise in the coming years.