Bank of Canade Raises Rates 1/4%

The Bank of Canada announced yesterday that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies. In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity. Inflation in Canada has been broadly in line with the Bank’s expectations and its dynamics are essentially unchanged.

Against this backdrop, the Bank decided to increase its target for the overnight rate to 1 per cent. As a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative. This is consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada.

This was a fairly unexpected Rate increase and if you have a variable or line of credit mortgage, your rate just went up .25%. There are currently fantastic fixed rates available and many people who believe the rates could keep climbing.

I also see Global recessions and problems in the US, London, and abroad that could well keep rates near all time lows. We had the same scare in the early Spring which resulted in a Bull market for April, May, June, and July. Much of this could have been the Olympic Glow / Benefits of The Olympic Infrastructure and Global Advertising, especially with so many Gold Medal & Crosby's Golden Goal! I correctly predeicted a hot market during and after the Olympics when many Realtors felt it would be quite.

Now I wonder if pent up demand from the summer months, fantastic fixed rates like 2.59% 3 year fixed and 3.59% 5 year fixed, and another scare that rates may climb will drive a busy Fall market that many would traditionally expect, when kids are back in school and adults are back to work.

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Stu Bell
Prudential Sussex Realty