What’s the Bank of Canada’s plan?

Tiff Macklem
BrainGain Magazine/YouTube
The Bank of Canada's 10th governor, Tiff Macklem.

The decision comes as no surprise. Nearly every economist polled by Reuters at the end of May expects rates won’t budge until at least the end of 2021.

“While we should see a reasonable bounce-back in economic activity as containment measures are lifted, we think a full recovery will take years,” RBC senior economist Josh Nye wrote in his May outlook. “As we enter the recovery phase ... low interest rates will be relied upon to stimulate growth.”

When Canada’s central bank slashed its key policy rate three times in March, from 1.75% all the way to its current level, then-governor Stephen Poloz said he wasn’t contemplating going any lower. He added in May that Canada seemed to be on track to meet the best-case scenario for recovery.

“We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons… They’re just not going to be like where they were 20 years ago or 30 years ago,” Poloz told reporters.

Poloz’s replacement, newly minted governor Tiff Macklem, agrees.

At a May 1 press conference announcing his appointment, Macklem said he favours aggressive tactics to “overwhelm” the financial crisis — but pushing interest rates into negative territory might be too radical.

“When you look at the current situation, yes, I’m quite comfortable with the effective lower bound where it is,” Macklem said.

The veteran of the 2008 financial crisis could lean on other measures, like buying even more debt, to address the COVID-19 fallout, though the bank plans to maintain or even scale back such efforts for now.

Assuming no emergency moves, the BoC’s next announcement on the overnight rate will take place July 15.

Unexpected vet bills don’t have to break the bank

Life with pets is unpredictable, but there are ways to prepare for the unexpected.

Fetch Insurance offers coverage for treatment of accidents, illnesses, prescriptions drugs, emergency care and more.

Plus, their optional wellness plan covers things like routine vet trips, grooming and training costs, if you want to give your pet the all-star treatment while you protect your bank account.

Get A Quote

What does a steady rate do for me?

Wooden home and money coins stack on wood scale. Property investment and house mortgage financial real estate concept
Monster Ztudio / Shutterstock
Now remains an ideal time to get a mortgage or other loan.

The BoC doesn’t decide what rates you pay on loans, at least not directly.

When it sets its target for the overnight rate, that affects how much interest commercial banks like BMO and RBC pay for short-term loans among one another. If the target goes up, commercial banks will pass on those costs to consumers by raising the prime rate: the amount of interest they charge their best customers.

The prime rate is then used to set the interest on all kinds of loans. So with the prime staying put for the foreseeable future, now remains an ideal time to borrow — as long as your credit score is still in good shape.

You might consider grabbing a personal loan, which you can use for all kinds of things. Maybe you want to buy a car or fix your roof or replace your high-interest credit card debt.

You’ll benefit even more if you want to buy a new home or refinance your current mortgage. If you’re a homeowner paying 3% or more, the cost of breaking your lending agreement may pale in comparison to the amount you’d save each month with one of today’s ultra-low rates.

All you need to do is check. You can compare rates from more than 30 federally insured lenders using the tool below:

Sponsored

Trade Smarter, Today

With CIBC Investor's Edge, kick-start your portfolio with 100 free trades and up to $4,500 cash back.

About the Author

Kevin Hamilton

Kevin Hamilton

Senior Associate Editor

Kevin Hamilton is the Senior Editor at Money.ca. An award-winning graduate of Ryerson University’s school of journalism, Kevin has made his mark at a number of publications including Metro, the Toronto Star, the Huffington Post, Toronto Life and the National Observer.

What to Read Next

Disclaimer

The content provided on Money.ca is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.