Bank of Canada Mortgage Rate Announcement - April 2021
April 26, 2021 | Posted by:
The Bank of Canada (BoC) made another announcement to wind down April of yet another tumultuous year. While their news release contains the information that we’ve continued to predict here at our Winnipeg mortgage broker office, there are some items worth noting. Here is a summary of the Bank’s press release.
What Home Buyers Need to Know About the Mid-Spring 2021 Bank of Canada Announcement Regarding Lending Rates
Bank of Canada Overnight Rate Maintained at .25%
As expected, the BoC is holding the overnight rate at .25 percent. The Bank Rate, which is the rate the central bank charges banks (RBC, etc.) to borrow funds, maintains at .5 percent. The deposit rate, which is the rate paid by commercial banks or financial institutions on cash deposits of account holders, stands at .25 percent.
Given that the BoC overnight rate has a direct relationship with variable mortgage rates, the April 2021 announcement is good news for buyers who prefer variable rates on a mortgage. Not ready to buy today? While we do encourage you to act fast before Winnipeg home prices rise even further (as inventory tightens) you will more than likely enjoy low variable rates for quite some time as the BoC stands by its expectation that there will be no rate hikes until mid-2022.
Bank of Canada Adjusts Quantitative Easing Program
The BoC’s quantitative easing program (QE) exists to keep fixed mortgage rates lower than they otherwise would be during a bolstering economic period. The Bank has announced that as of April 26 (today, at press) weekly net purchases of Government of Canada bonds will be adjusted to a target of $3 billion. Without going into Economics 101 (or more like Econ 102) here, just know that this adjustment reflects the progress made in the economic rebound. Despite much of Canada being in the third wave of the health crisis, vaccines are rolling out to include a greater number of population segments. As the economy reopens at an equally greater rate, consumption is expected to rebound strongly in the second half of this year and remain robust over the Bank of Canada’s earlier (January 2021) projection. Already we’re seeing bond yields (directly related to fixed mortgage rates) push higher and the Canadian dollar (CAD) has gained on global currencies (USD included) quite significantly this spring. But to mitigate a corresponding rise in the 5-year fixed rate, the BoC is continuing its QE program to reinforce its commitment to keep fixed rates low across the yield curve. That said, the BoC has dropped some indicators about how long they will maintain the QE program:
“Decisions regarding further adjustments to the pace of net purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.” (Bank of Canada, April 21 2021)
Read the above statement to mean that while fixed rates will remain low over the next few months, expect them to rise as the economy rebounds. Some lenders have already made notable increases. Again, 5-year fixed rates are VERY low, but buyers should not wait much longer to act.