Homeowners who are considering refinancing their mortgage now have further data to consider in weighing their decision. Cuts in Canadian mortgage rates have contributed to lower than expected inflation numbers, according to Statistics Canada, spurring analysts and investors to reconsider whether the Bank of Canada will again hike its interest rate when its governors meet on September 8th to review rates.
Canada’s central bankers had anticipated a gradual rise in interest rates to ward off inflationary pressures, a scenario that may not be necessary just now given the latest numbers on inflation.
Bloomberg reports that “falling costs on mortgage interest, women’s clothing and air transportation [have] tempered gains” in other sectors such as energy – electricity and gasoline prices – according to Statistics Canada’s just released numbers on the consumer price index (CPI). July’s CPI rose 1.8 percent year-over-year, as opposed to a 1.0 per cent gain in June. Significantly, July’s CPI number is still below the Bank of Canada’s target of keeping inflation below 2.0 per cent.
This recent data indicating that the recovery may be losing traction has led investors to discount the odds of a Bank of Canada rate hike in September. Bloomberg reports that “(t)he odds of the Bank of Canada raising its interest rates to 1 per cent at its Sept. 8 meeting fell to 44 per cent from 60 percent on July 19, according to a Suisse Group AG calculation derived from overnight index swaps.”
The Bank of Canada has implemented two 0.25 per cent rate hikes since June, bringing its current lending rate to 0.75 per cent. July’s CPI numbers and slower-than-forecast growth “certainly gives the bank plenty of license or leeway [for the bank] to take at least a temporary pass in its rate hike campaign,” BMO Capital Markets’ Douglas Porter told Bloomberg. Whether there will be a further rate hike September 8th is “very much an open question,” he observed.
Canadian mortgage rates, it now seems, are more likely than not to stay at their current low levels in the near-term. (Indeed, major banks cut their interest rates on 5 year closed mortgages earlier this month.) Nonetheless, homeowners looking at refinancing their current mortgage may wish to consider doing so prior to September 8th. Regardless of the Bank of Canada’s rate announcement in September, interest rates on closed mortgages are unlikely to go significantly lower in the medium to long-term.
