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The History of Interest Rates

24 May 2012

Interest rates are what homeowners seem to live and die by sometimes. When are they going up, and how long are they going to stay so low? Currently in Canada we know that the next interest rate announcement from the Bank of Canada will come on June 5. And we also know that it’s likely not going to change at that time, and that all home loans, from Ottawa mortgages to Calgary mortgages and beyond, are going to have the same interest rate after that time. But the set dates that we’ve grown accustomed to haven’t always been around; and the government used to change the date whenever they wanted.

Before the year 2000, the Bank of Canada didn’t have any fixed schedule for their interest rate announcements as they do now. Instead, the Bank was ready to act whenever it deemed fit or rather, whenever the economy and housing market called for such action to be taken – and that could happen overnight. Neither the banks, households, or those within the marketplace knew whether or not the interest rate would be changed from one day to the next, or when the rate would change.

This caused a few problems, and for more than just homeowners and homebuyers across the Canada. It also made it very difficult to plan for policy decision-making activities, and it made forecasts nearly impossible for those within the Bank and for economists throughout the nation. The level of unpredictability within just about every market made the “sudden change” approach to interest rates ineffective, and caused more problems than it did help them.

This was why in the year 2000, the Bank of Canada moved to the fixed announcement dates that they currently have scheduled. These announcements are made eight different times throughout the year with six or seven-week intervals in between each.

However, this doesn’t leave our government powerless to do anything should economic conditions call for an interest rate during those six or seven weeks. The Bank can still step in when it sees fit and make rate changes to benefit the economy. There have only been two instances when this has happened in the past. The first was on September 17, 2001, after the terrorist attacks on the United States; and on October 8, 2008 as other central banks were easing their policies.

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