In just a few days it’s going to be March 8, a day that many homeowners, banks, and mortgage brokers have been waiting for. March 8 of course, is the day that the Bank of Canada will release their overnight rate and we’ll find out if there have been any changes made to the historically low interest rates we’ve been enjoying for the past year and a half. Most analysts and experts agree that the bank isn’t going to touch the overnight rate, keeping it at 1% just like they did in early January of this year. But there’s one company, Capital Economics based out of Toronto, that thinks the bank could actually lower the rate even further.
Capital Economics thinks that our interest rate could be as low as 0.50% by the end of 2013, so while we might not see a change this week, they definitely think it’s going to happen. That’s not as low as our interest rate has ever been. When the Canadian government first saw the need to lower rates to “emergency levels,” they lowered them to an almost unheard of 0.25%. Capital Economics doesn’t think that they’ll go that far; but according to David Madani, an economist at Capital, “As economic growth slows and unemployment rises this year and next, more policy stimulus will eventually be needed.” But, is this the kind of stimulus that Canada’s economy really needs right now?
Probably not. Interest rates are already remarkably low, and are enough to help people get a mortgage or a second mortgage when they need one. Add to that the fact that Bank of Canada Mark Carney, as well as Finance Minister Jim Flaherty’s continual warnings that our household debt is far too high, and that we’re relying too much on home equity loans and home equity lines of credit in Canada, and the prediction looks even less true. Lowering the rates even further would just encourage people to borrow even more. And while that’s a good thing for homeowners and consumers, it’s not so great for the government, who’s already trying to come up with ways to stop taking on more debt than we can afford while continually reminding us that our debt levels are far too high.
We think that on Thursday when the announcement is made, there will be no change and the Bank’s overnight rate will remain at 1%. While a lowering of the rate would be nice, we also shouldn’t forget that this is already a very good rate and should give consumers that need it the ability to own a home or borrow against the one they already have.
The Bank’s announcement will made this Thursday, March 8.
