March 10 2021 BoC Rate Announcement

As expected the Bank of Canada announced this morning that it will be maintaining its overnight interest rate at 0.25% keeping the retail prime rate at 2.45% (2.70% at TD). The bank will also be continuing with the quantitative easing program.

The highlights from the report are:

• The global economy is starting to recover from the Covid-19 pandemic.

• The US economy has started to increase as Covid cases decline and new fiscal stimulus programs have been implemented. These programs are encouraging an increase in consumption.

• The Canadian economy held up stronger during the latest lockdown than originally forecasted.

• Canadian GDP is now expected to grow in the first quarter of 2021 rather than contract as the bank projected in last January's report.

• The inflation rate is at the highest level since the onset of the pandemic

• There is still a lot of market uncertainty with employment levels far under where they were pre-Covid.

What does this mean for mortgages? Fixed or Variable?

Most people don't know but Fixed and Variable rate mortgages are actually controlled by separate base rates.

Variable-rate mortgages are determined by the overnight rate set by policymakers at the bank of Canada.

Fixed-rate mortgages are determined by the government's 5-year bond yield determined by investors.

What makes the current situation interesting is that the two are not currently seeing eye to eye.

The Bank of Canada is projecting that inflation will rise slightly in the coming weeks but settle back down in the following months while investors are reacting with the expectation that inflation may continue to rise.

This is why fixed-rate mortgages are increasing and variable rate mortgages maintaining current levels.

Have Questions? Do you want a little more clarity about today's Bank of Canada's announcement or have questions about anything else mortgages? My door is always open and I love to talk mortgages!

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