Now that the Bank of Canada has paused in its policy of increasing its overnight lending rate, ensuring that interest rates on a wide variety of home mortgage products will remain near their current lows in the short term, how long is a pause in rate hikes likely to last?
While one analyst, as reported by the Financial Post, goes so far as to speculate that the Bank of Canada could actually reduce its overnight lending rate at its next policy meeting in December, most analysts see this pause as lasting well into 2011 before any further rate hikes are in the offing.
Pascal Gauthier, senior economist at TD Bank Economics, observes that monetary easing (promoting economic stimulus) rather than inflation is the key driver behind the Bank of Canada’s latest rates decision. With the Federal Reserve “more likely than not” to undertake a second round of quantitative easing in November – quantitative easing that would put even more upward pressure on the Canadian dollar, thereby making crucial exports more expensive – Mr. Gauthier notes that the Bank of Canada “would likely be uncomfortable with further [monetary] tightening” effected by near term rate hikes.
The December and January meetings of the Bank of Canada will be too early for the Bank of Canada to assess the effect of further quantitative easing on the part of the Fed, surmises Mr. Gauthier, making the Bank of Canada’s March 1, 2011 rates meeting the “most likely” time for a further rate hike.
“In the interim,” he cautions, “do not look for the [Bank of Canada] to hint at how long it may stand pat, for fear of reigniting a surge in credit demand. It will, however, be eager to signal its next hike at the first opportunity provided by strong enough economic data. We expected the overnight rate to reach 2.00% by the end of 2011.”
If, as Mr. Gauthier and most other analysts suggest, the Bank of Canada halts further rate hikes into 2011 before resuming a course of monetary tightening later in that year, this presents homeowners with an opportunity for renewing or refinancing a home mortgage at what will, most likely, be the most favourable rates available in the short and medium term.
