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What’s the Bank of Canada’s plan?

Tiff Macklem
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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.

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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
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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:

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If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.

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