The Bank of Montreal last forecasted that the Bank of Canada would keep its overnight lending rate at the historic low of 1 per cent until January of 2013. But now, with the U.S. Federal Reserve being more lenient in their policies, a more uncertain economy here at home, and to top it all off – new mortgage rules – BMO is now saying that the overnight rate is expected to be kept right where it is until July of 2013.
Senior economist, Michael Gregory, says, “The weaker U.S. economy, which is causing the Fed to ease in the first place, does ripple across the border and directly impacts Canada through trade channels and things like that.”
And while Mark Carney has warned many times that household debt due to HELOCs, home equity loans, and consumer debt are the biggest threats to the household economy, many have said that Mr. Carney will raise interest rates sooner rather than later. But, Mr. Gregory says that with the new mortgage rules, that pressure has been taken off Mr. Carney for some time.
“The tightening of the government’s mortgage insurance rule does serve to act like higher interest rates specifically for that sector,” says Mr. Gregory. “So that takes some of the urgency away from the Bank of Canada to adjust rates any time soon.”
And, Mr. Gregory also says that although the last policy report showed that the Bank of Canada reported a 2.4 per cent annual growth for the Canadian economy through 2013, Mr. Gregory doesn’t think it will be that high; and this will also affect when the Bank raises its rate.
Mr. Gregory said, “I suspect the policy report will show softer growth in Canada, partly because of global factors and in part because of what’s going on in the U.S.” That change Mr. Gregory expects to be made will be announced on July 18, he thinks.
And Mr. Gregory also isn’t the only one at BMO chiming in on how long rates will remain low. Laura Parsons, mortgage expert at BMO, says that even if they do remain low until next summer, they will still rise at some point; and homebuyers should be choosing fixed rates in order to take the most advantage of where rates sit now.
“While interest rates have been at historic lows, the inevitable climb will happen,” she says. “Choosing a fixed mortgage can provide protection against rising rates and make the cost of owning a home more manageable in the long run.”
