In line with financial market expectations, the Bank of Canada announced on December 4th, 2019 that it was keeping its trend-setting overnight lending rate unchanged at 1.75%. This marks the ninth straight interest rate decision where the Bank has held rates steady.
Language in the announcement suggested that the bank remains worried about the outlook of economic growth due to ongoing trade conflicts and associated business uncertainty. It also highlighted how consumer spending and housing activity were sources of strength and signaled its ongoing concerns about Canadian household indebtedness.
Financial markets likely focused on the latter and pared bets that Bank would cut interest rates when making policy interest rate announcements in early 2020. At the same time, financial markets also marginally increased the odds that the bank would cut rates in mid-2020 while keeping those odds slim.
On December 4th, the benchmark five-year lending rate was still 5.19%, where it has remained since being trimmed mid-July by a quarter of a percentage point. All mortgage applicants must qualify for financing based on an interest rate no less than the benchmark five-year lending rate, even if the mortgage is for less than five years.
Canada’s major chartered banks are currently advertising five-year fixed mortgage interest rates of around 3%. Homebuyers can often negotiate the interest rate for mortgage financing based on their creditworthiness and the degree to which they do other banking business with the mortgage lender.
The Bank of Canada’s next interest rate announcement will be on January 22nd, 2020, when it also will release its revised economic outlook.