The Bank of Canada today announced — for the 13th consecutive time since September 8, 2010— that its overnight rate target would remain at 1 per cent. However Mark Carney’s announcement has the real estate industry preparing itself for an increase in interest rates sooner than expected.
The rate was not expected to rise before mid-2013 as long as the inflation rate stays on the Bank’s 2 per cent target, but the Bank is now projecting 2.4 per cent growth in the economy for 2012 and 2013.
From the press release:
The degree of economic slack has been somewhat smaller than the Bank had anticipated in January, and the economy is now expected to return to full capacity in the first half of 2013.
As a result of this reduced slack and higher gasoline prices, the profile for inflation is expected to be somewhat firmer than anticipated in January….
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus (i.e., low interest rates) may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.
Mortgage rates have already risen slightly, even though the Bank has not changed its policy interest rate. According to the Canadian Real Estate Association, “As of April 17th 2012, the advertised five-year lending rate stood at 5.44 per cent. This is up 0.2 percentage points from 5.24 per cent on March 8th, when the Bank made its previous policy interest rate announcement.”
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