The Bank of Canada announced today that it’s leaving interest rates unchanged. The target for the overnight rate will remain at 1% which will in turn leave the prime lending rate at 3.0%. This decision was largely expected by industry participants who believe that the prime lending rate will maintain it’s current level well into 2013.
What wasn’t clear was the message the Bank was going to relay in it’s announcement. Previous announcements warned that the Bank will soon be withdrawing the significant monetary policy stimulus by aggressively raising rates. After 18 consecutive meeting dates and no interest rate increases it was becoming an empty threat.
The new wording included the softeners “over time”, “modest withdrawal” and “likely be required”. This more subdued wording is less of a warning and more of a reminder that mortgage rates cannot stay this low forever. This was a big step for the Bank of Canada. It’s now admitting that there’s little risk for variable mortgage rate holders and that borrower solvency won’t be threatened by spiking mortgage rates. In fact fallout from the so called fiscal cliff in the United States could just as likely cause variable mortgage rates to drop over the next few months.