Bond Yields Surge, Mortgage Rates Rising in Response

Economic Insights Raymond Walia 30 Mar

Canadian bond yields hit their highest level since April in recent days, and a number of lenders have responded by starting to raise some of their mortgage rates.

CMLS, MCAP and First National were among the non-bank lenders to increase at least some of their rates, with their broker rates rising 10-30 bps.

The 5-year bond yield, which leads fixed mortgage rates, closed at 0.67% on Monday, a 10-month high. As funding costs rise, lender margins get squeezed to the point they can no longer absorb the increase without passing it on to borrowers.

What’s Driving Yields Higher?

There are a number of domestic factors contributing to the run-up in bond yields, but much of the impact is coming from south of the border, according to Dave Larock of Integrated Mortgage Planners.

“The current surge in bond yields is really a U.S. story, with GoC bond yields taken along for the ride…” he writes. “Simply put, the recent run-up is a response to the growing consensus belief that U.S. inflationary pressures will rise more quickly than previously expected.”

North of the border, sentiment is largely positive on the expectation that COVID-19 vaccines will finally spell the end of the pandemic and its restrictive lockdown measures. Not to mention, the economic impact of the Government of Canada’s own proposed $100 billion of post-pandemic stimulus spending.

Will Mortgage Rates Continue to Rise?

Nothing is certain, of course. Bond yields also jumped back in November 2020 on news of Pfizer’s COVID-19 vaccine proving effective in trials, which caused some at the time to suggest rates would start rising. Instead, they continued to fall, right up until last week.

“For my part, I continue to believe that the current run-up in bond yields will be temporary, and it is worth remembering that nothing goes up or down in a straight line,” Larock wrote. But he also acknowledged rates won’t remain low indefinitely.

“The only thing that has been holding lenders back is stiff competitionno one wants to be the first to move higher,” he said. “Regardless, the dam will break very soon.”

Rob McLister, founder of RateSpy.com and mortgage editor at RATESDOTCA, sees this rise in yields as more sustained, saying mortgage rates have “turned the corner.”

“Expect further hikes,” he wrote, noting that bond yields have soared roughly 30 bps since February 1. “There’s still no sign of increases from the big guns (major banks), but if this yield climb persists, it’s just a matter of time [that they will follow].”

How Should Mortgage Shoppers Respond?

For those with a mortgage closing in the next few months and who are considering a fixed mortgage, the experts offer two words of advice: lock in.

“It’s rate-hold time if you’re closing a mortgage between now and the end of June (since most rate guarantees last only 120 days or less),” McLister said.

“Some lenders will milk their current low rates for all they’re worth in order to keep the volume flowing…But don’t bet on that lasting long…unless there’s a further derailment of our economy, which is possible, but less probable the further we get into 2021.”

For those leaning towards a variable rate, those aren’t currently at imminent risk of rising, since they are priced based on prime rate, which rises or falls depending on the Bank of Canada’s overnight target rate movements.

At its last rate decision in January, the Bank of Canada said its overnight target rate of 0.25% will likely remain unchanged until 2023, providing assurances to borrowers that now is still a good time to purchase a home.

Another point to remember is that, despite any small to moderate increases in the 5-year fixed rate, Larock notes that borrowers will still have to qualify based on the government’s 4.79% mortgage stress test.

“So, an increase in real rates won’t have any impact on the amount they can actually borrow,” he wrote. “If you’re in the market for a mortgage today, the usual tips apply. If you will want a fixed rate, which is likely, lock in a pre-approval to guard against rising rate risks.”

Published by: Mortgage Broker News 

Residential Market Commentary – Canadians remain committed to home ownership

Economic Insights Raymond Walia 30 Mar

In a year that gave many market watchers whiplash Mortgage Professionals Canada finds that, at the end of the day, nothing really changed very much, particularly when looking at consumer sentiment.

MPC’s annual “State of the Mortgage Market” collected nearly 2,000 responses to its online survey earlier this year.  Using a 10 point scale, respondents indicated whether they agreed, or disagreed, with each in a series of statements.  A response of 10 indicates complete agreement.  A one indicates complete disagreement.

  • There continues to be a high level of agreement that real estate in Canada is a good, long-term investment, rating 7.29 out of 10, down marginally from the long-term average of 7.34.
  • Mortgage debt is “good” debt, maintains a high level of agreement at 6.98, down slightly from the average of 7.04.
  • 6.93 believe they are in a good position to weather a downturn in housing prices, slightly higher that the 6.87 average.
  • 6.44 agree that they can manage an increase in interest rates, up from 6.36 last year (the first year the question was included).
  • 6.68 agree that low interest rates have encouraged home purchases by those who probably should not be homeowners.While this is the lowest level in the 11 year history of the survey, it just slightly below the average of 6.93.
  • At the same time just 3.62 out of 10 expressed regret about the size of the mortgage they took on.That’s down from the long term average of 3.75.

The responses to the last two statements seem to indicate that Canadian home buyers have confidence in their own decisions but question the wisdom of others.

Mortgage arears remain remarkable low at just 0.22%, down from 0.23% last year.

More than half (55%) of borrowers continue to get their new mortgages from one of the big banks, while 31% of all outstanding mortgages were arranged through a mortgage broker.  That jumps to 40% for mortgages obtained in 2020.

Respondents to the survey breakdown as follows:

  • 45% homeowners with mortgages
  • 29% homeowners without mortgages
  • 20% renters
  • 5% others

The full, 75-page, report is available here.

 

Published by: First National Financial LP

Forward thinking with Thomas Kim

Economic Insights Raymond Walia 26 Mar

The first two months of 2021 have revealed an interesting dichotomy. While many parts of Canada remain in the grips of a pandemic lockdown, real estate and capital markets are running hot as a result of growing optimism due to the roll out of COVID-19 vaccinations. It is in this context that we asked Thomas Kim, Vice President and Managing Director, Capital Markets at First National to share his perspectives on recent economic and market developments and what they may mean for the future. This interview was recorded in early March 2021.

Thomas, what do you make of the state of the housing market today? It’s almost supercharged at a time when the economy is still struggling.

I take the view that the market is the market. By that I mean volumes and prices are set by the market and it’s hard for anyone to second guess these developments and decide whether they are correct or acceptable based on some sort of theoretical framework. Canada is a desirable place to own property and a magnet that draws people from around the world and for the foreseeable future it will continue to be so. Prices also reflect a supply challenge.

What do you mean?

It’s difficult to bring new supply of housing stock onto the market and that’s true in just about every jurisdiction and certainly in our largest cities. When there is a demand-supply imbalance, prices will be affected.

What about interest rates? Is there an expectation that they will move upward this year?

We’ve already had a big change in bond yields. Five and 10-year Government of Canada bond yields are up about 60 basis points and the bulk of those moves has happened just in the past few days. It’s been an amazing rise. This change is a reflection of optimism that the economy and employment will be quite a bit stronger on the other side of the pandemic and that the roll out of vaccines will allow a return to something more normal pretty quickly. Since bond yields move through everything, we will see this reflected in mortgage rates, no question. In fact, we already have and notably, the central bank had nothing to do with it. The BoC’s overnight rate is unchanged.

What about inflation?

There is a concern about inflation down the road because of extraordinary monetary and fiscal actions to date. But what’s notable is that all of the liquidity that has been added to the system has really gone into financial assets. It hasn’t yet translated into what you would think of as GDP transactions, which is where inflation of the kind that would concern central bankers shows up. There is still slack capacity in the quote unquote real economy.

It was just about a year ago that the pandemic was declared. In hindsight, did conditions in the capital markets turn out as you originally expected?

Back then, I was hoping certain economic supports would be offered by the various departments in Ottawa. I never imagined just how vigorous the response would be from everybody involved…the Bank of Canada, CMHC and the Department of Finance. At all levels, the support was far more dramatic than just about anyone thought likely or possible. There will always be critics, but you can’t argue with the results. These actions prevented a collapse in the economy and in the market.

Was there anything that you thought would happen that didn’t?

Yes, last February/March, I thought the lockdown would be far more severe, almost more militaristic in an effort to keep the infection rate down. It was fortunate for the economy that it didn’t happen that way. But I think society went from being pretty blasé about COVID-19 in February to being extremely concerned by the second week of March 2020 and then by the fall, back to being almost casual about it. After the initial shock, the attitude was pretty sanguine.

Capital markets were also relatively calm, until recently.

Correct. Although it seems completely unrelated to Canadian real estate and mortgages, the whole GameStop saga has given way to a period of volatility and market distortion. We also see this in bitcoin prices and in bond yields now exploding as I mentioned. It’s not so much the fact that these things are rising, it’s the speed with which they are rising. Big moves like this are an indication that something is going on. It’s just not possible to say what that something is.

As optimism grows and more vaccines arrive, we may see governments begin to withdraw support. Is that cause for concern?

It’s difficult to tell everyone to stay home if there isn’t some sort of support in place. Similarly, on the business side, you can’t tell an owner to shut down and stay closed without providing assistance. So it’s a short run concern for sure and a challenge for policymakers to get the timing right on the wind down.

How has the pandemic changed or challenged First National’s Treasury Department and your strategies?

There is no direct link between the course of the pandemic and what we do in our jobs. We’re always focused on helping First National grow and setting up the company for a successful year.

Is there anything positive that has come out of the pandemic in terms of how you do your jobs or how the capital markets function?

The positive is that we’ve discovered we can work from home, as can our business partners and bond traders, and still get the job done. A year ago, people would have scoffed at that idea and said it was impossible. They were wrong. We’re also a lot better at working from home than we were 12 months ago and a lot of that is due to learning how to collaborate and communicate using technology. We have to be a lot more deliberate about this because it’s not currently possible to have conversations around the water cooler or in the hallway.

How is work from home likely to affect demand for commercial office space?

The world is never going back to normal, but that does not mean we need less office space. Even technology companies that are at the leading edge of remote work are still building massive amounts of office space all over the world.  They are investing in the future because it is important to have a physical location. It’s all the unseen stuff, the cultural clues, that go missing without office space.

Do you see a new direction or outlook emerging this spring?

I think as we go into the spring and summer, it will be a little like last year when everything got a little easier and COVID case counts dropped. Certainly, all the economic forecasters and the bulge-bracket banks are expecting that we are going to come out of the current malaise quickly. In the market, everybody is simply looking past the next few months to better times ahead.

Any other thoughts for 2021?

We’re certainly focused on securitization and doing more of it this year and generally being a good partner. I’d like to think that all of our various customers…mortgage brokers, borrowers and investors will see First National as a very stable and trusted partner based on what we achieved together in 2020. When I look back, I’m proud of the fact that we didn’t make any sudden moves, we didn’t shut anything down or scale anything back. We were a constant partner, a company to be counted on.

Published by: First National Financial LP

Residential Market Commentary – The return of concern about a housing bubble

Economic Insights Raymond Walia 26 Mar

The “B” word has started floating back into discussions about Canada’s housing market.  The latest numbers from the Canadian Real Estate Association help to explain why worries about a bubble are on the rise.

Sales activity in February jumped nearly 40% compared to a year earlier, setting a new record.  Sales rose nearly 7% compared to January.  The national average price surged by 25% year-over-year.  New listings rebounded month-over-month in February but inventories remain at record lows.  Nationally there is just 1.8 months of supply.

The Bank of Canada has expressed concerns about overheating.  Governor Tiff Macklem has noted that there are signs that real estate speculation is on the rise.

“What we get worried about is when we start to see extrapolative expectations, when we start to see people expecting the kind of unsustainable price rises we’ve seen recently go on indefinitely, and they’re basing their decision on those kinds of assumptions,” Macklem warned earlier this month.

Other market watchers point to less “bubbly” factors.

“I think part of it is demand that built up as a result of regulatory changes in the years leading up to COVID that is playing out now.  Part of it is demand that is being pulled forward from the future either in search of a home base to ride out the pandemic, or to lock down a purchase amid rapidly rising prices while securing a record low mortgage rate,” said Shaun Cathcart, CREA’s Senior Economist.

Tsuriel Somerville, a professor of urban economics at the University of British Columbia, believes demographic factors could be pushing the market.  He also believes COVID-19 may have accelerated some transactions that would have happened anyway, but over a more extended period.  Somerville says millennials – who are said to be happy with renting and living in a sharing economy – will eventually get into the ownership market when their demographics dictate.

Published by: First National Financial LP

Housing Continued to Surge in February

Economic Insights Raymond Walia 15 Mar

Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in February 2021. Canadian home sales increased a whopping 6.6% month-on-month (m-o-m), building on the largest winter housing boom in history. On a year-over-year (y-o-y) basis, existing home sales surged an amazing 39.2%. As the chart below shows, February’s activity blew out all previous records for the month.The seasonally adjusted activity was running at an annualized pace of 783,636 units in February. CREA’s revised forecast for 2021 is in the neighbourhood of 700,000 home sales. Strong demand notwithstanding, sales may be hard-pressed to maintain current activity levels in the traditionally busier spring months absent a surge of much-needed new supply. However, that could materialize as current COVID restrictions are increasingly eased and the weather starts to improve.

The month-over-month increase in national sales activity from January to February was led by the Greater Toronto Area (GTA) and several other Ontario markets, along with Calgary and some markets in B.C. These offset a considerable decline in Montreal’s sales, where new listings have started 2021 at lower levels compared to those recorded in the second half of last year.

In line with heightened activity since last summer, it was a new record for February by a considerable margin (over 13,000 transactions). For the eighth straight month, sales activity was up in the vast majority of Canadian housing markets compared to the same month the previous year. Among the eight markets that posted year-over-year sales declines in February, minimal supply at the moment is the most likely explanation.

“We are right at the start of the first undisturbed (by policy or lockdown) spring housing market in years, and we also have the most extreme demand-supply imbalance ever by a large margin. So, the question is, what is going on? I think part of it is the demand that built up due to regulatory changes in the years leading up to COVID that is playing out now. Part of it is the demand that is being pulled forward from the future either in search of a home base to ride out the pandemic or to lock down a purchase amid rapidly rising prices while securing a record low mortgage rate,” said Shaun Cathcart, CREA’s Senior Economist. “But maybe the biggest factor here is the emergence of existing owners with major equity, prompted by the great shake-up that is COVID-19 to pull up stakes and move. First-time buyers, which we have a lot of, are now having to compete with that as well.”
New ListingsThe number of newly listed homes rebounded by 15.7% in February, recovering all the ground lost to the drop recorded in January. With sales-to-new listings ratios historically elevated at the moment, indicating almost everything that becomes available is selling, it was not surprising that many of the markets where new supply bounced back in February were the same markets where sales increased that month.

With the rebound in new supply outpacing the gain in sales in February, the national sales-to-new listings ratio came off the boil slightly to reach 84% compared to the record 91.2% posted in January. That said, the February reading came in as the second-highest on record. The long-term average for the national sales-to-new listings ratio is 54.4%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 15% of all local markets were in balanced market territory in February, measured as being within one standard deviation of their long-term average. The other 85% of markets were above long-term norms, in many cases well above. The first two months of 2021 and the second half of 2020 have seen record numbers of markets in seller’s market territory. For reference, the pre-COVID record of only around 55% of all markets in seller’s territory was set back at the beginning of 2002.

There were only 1.8 months of inventory on a national basis at the end of February 2021 – the lowest reading on record for this measure. The long-term average for this measure is a little over five months. At the local market level, some 40 Ontario markets were under one month of inventory at the end of February.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) jumped by 3.3% m-o-m in February 2021 – a record-setting increase. Of the 40 markets now tracked by the index, all but one were up on a m-o-m basis.The non-seasonally adjusted Aggregate Composite MLS® HPI was up 17.3% on a y-o-y basis in February – the biggest gain since April 2017 and close to the highest on record.

The largest y-o-y gains – above 35% range – were recorded in the Lakelands region of Ontario cottage country, Tillsonburg District and Woodstock-Ingersoll.

Y-o-y price increases in the 30-35% were seen in Barrie, Niagara, Bancroft and Area, Grey-Bruce Owen Sound, Kawartha Lakes, London & St. Thomas, North Bay, Northumberland Hills, Quinte & District, Simcoe & District and Southern Georgian Bay.

This was followed by y-o-y price gains in the range of 25-30% in Hamilton, Guelph, Cambridge, Brantford, Huron Perth, Kitchener-Waterloo, Peterborough and the Kawarthas and Greater Moncton.

Prices were up in the range from 20-25% compared to last February in Oakville-Milton and Ottawa, 18.8% in Montreal, 16.1% in Chilliwack, in the 10-15% range on Vancouver Island, the Fraser Valley and Okanagan Valley, Winnipeg, the GTA, Mississauga and Quebec, the 5-10% range in Greater Vancouver, Victoria, Regina and Saskatoon, in the 3.5% range in Calgary and Edmonton, and 2.6% in St. John’s.

Detailed home price data by region is reported in the table below.

Bottom Line

We all know why the housing boom is happening:

  • Employment in higher-paying industries has actually risen despite the pandemic, supporting incomes among potential homebuyers.
  • Mortgage rates plumbed record lows and, while they’re backing up now, they’re still below pre-COVID levels, while many buyers are likely still on pre-approvals with rates locked in.
  • There’s been a dramatic shift in preferences toward more space, further outside major urban centres (commuting requirements are down and probably assumed to remain down).
  • Limited travel has created historic demand for second (recreational) properties, and households have equity in existing properties to tap.
  • Younger households are likely pulling forward moves that would have otherwise happened in the years ahead.
  • There has to be some FOMO and speculative activity in the market at this point. In January, 6% of all houses listed for sale in Toronto’s suburbs had been bought in the previous 12 months, up from 4% a year earlier, according to brokerage Realosophy.

On the flip side, there is precious little supply to meet that demand, at least in segments that the market wants.

In a separate release, Canadian housing starts pulled back to 245,900 annualized units in February, a still-high level following a near-record print in the prior month. This is not a winter wonder. Starts on a twelve-month average basis are running at 227k annualized, the strongest such pace since 2008, and over the past six months, starts are averaging 242k, the highest since at least 1990. Both single- and multi-unit starts declined in the month, as did all provinces but British Columbia.

Published by: Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Bank of Canada Holds Rates and Bond-Buying Steady

Economic Insights Raymond Walia 11 Mar

Much has changed since the Bank of Canada’s last decision on January 20. While the second pandemic wave was raging, new lockdowns were implemented in late 2020, and there were fears that the economy, in consequence, was likely to grow at a 4.8% annual rate in Q4 and contract in Q1. Instead, the lockdowns were less disruptive than feared, as Q4 growth came in at a surprisingly strong 9.6% annual rate–double the pace expected by the Bank.

Rather than a contraction in  Q1 this year, Statistics Canada’s flash estimate for January growth was 0.5% (not annualized). Strength in January came from housing, resources and government spending, and the mild weather likely helped. In today’s decision statement, the central bank acknowledged that “the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures.”  The BoC now expects the economy to grow in the first quarter. “Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.”

A massive $1.9 trillion stimulus plan in the US is also about to turbocharge Canada’s largest trading partner’s economy, which will be a huge boon to the global economy and explains why commodity prices and bond yields have risen substantially in recent months. The Canadian dollar has been relatively stable against the US dollar but has appreciated against most other currencies.

Economists now expect Canada to expand at a 5.5% pace this year versus a 4% projection by the Bank of Canada in January. Going into today’s meeting, no one expected the Bank to raise the overnight policy rate, but markets were pricing in more than a 50% chance of an increase by this time next year, up from about 25% odds in January.

On the other hand, the BoC continued to emphasize the risks to the outlook and the huge degree of slack in the economy. “The labour market is a long way from recovery, with employment still well below pre-COVID levels. Low-wage workers, young people and women have borne the brunt of the job losses. The spread of more transmissible variants of the virus poses the largest downside risk to activity, as localized outbreaks and restrictions could restrain growth and add choppiness to the recovery.”

The Bank also attributed the recent rise in inflation was due to temporary factors. One year ago, many prices fell with the onslaught of the pandemic, so that year-over-year comparisons will rise for a while because of these base-year effects combined with higher gasoline prices pushed up by the recent run-up in oil prices. The Governing Council expects CPI inflation to moderate as these effects dissipate and excess capacity continues to exert downward pressure.

According to the policy statement, “While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until 2023.” The Bank will continue its QE program to reinforce this commitment and keep interest rates low across the yield curve until the recovery is well underway.  As the Governing Council continues to gain confidence in the recovery’s strength, the pace of net purchases of Government of Canada bonds will be adjusted as required. The central bank will “continue to provide the appropriate monetary policy stimulus to support the recovery and achieve the inflation objective.”
Bottom Line

The Bank gave no indication when it might start to taper its bond-buying. The next decision date is on April 21, when a full economic forecast will be released in the April Monetary Policy Report. Governor Macklem is more dovish than many had expected and will err on the side of caution. When the central bank starts tapering its asset purchases, it will be the equivalent of easing off the accelerator rather than applying the brakes. The Bank of Canada has been buying a minimum of $4 billion in federal government bonds each week to help keep borrowing costs low. That pace may no longer be warranted with an outlook that appears to show the economy absorbing all excess slack by next year, ahead of the Bank of Canada’s 2023 timeline for closing the so-called output gap.

Published by: Dr. Sherry Cooper

Bank of Canada holds benchmark rate steady, updates economic outlook

Economic Insights Raymond Walia 11 Mar

This morning, in its second announcement of 2021, the Bank of Canada left its target overnight benchmark rate unchanged at 0.25%. As a result, the Bank Rate stays at 0.5%.

Prior to the announcement, there was some speculation that the Bank would signal its intention to begin tapering asset purchases that have been the central feature of monetary policy since the global pandemic began one year ago. It did not follow this course.

In fact, the Bank announced it is maintaining its extraordinary forward guidance, “reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.”

Nevertheless, the BoC did make some encouraging statements about the state of the economy. Here is a summary:

Canadian Economic Conditions

  • GDP grew 9.6% in the final quarter of 2020, led by strong inventory accumulation
  • GDP growth in the first quarter of 2021 is now expected to be positive, which is different than what the Bank forecast in January
  • The economy is proving to be more resilient than anticipated to the second wave of the virus
  • Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected
  • Although activity in “hard-to-distance” sectors continues to be held back, recent data point to continued recovery in the rest of the economy
  • Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment
  • Oil and other commodity prices have risen
  • The Canadian dollar has been relatively stable against the US dollar but has appreciated against most other currencies

Global & U.S. Economic Conditions

  • The global economy is recovering from the economic effects of COVID-19, “albeit with ongoing unevenness across regions and sectors”
  • The US economic recovery appears to be gaining momentum as virus infections decline and fiscal support boosts incomes and consumption
  • New fiscal stimulus will increase US consumption and output growth
  • Global yield curves have steepened, largely reflecting the improved US growth outlook, but global financial conditions remain “highly accommodative”

Inflation

The Bank reported that inflation measured by the Consumer Price Index is near the bottom of its 1% to 3 % target band but is likely to move “temporarily” to around the top of the band in the next few months. This stands to reason as the prices of some goods and services fell precipitously at the outset of the crisis and are now recovering. Measures of core inflation currently range from 1.3% to 2%.

Once this inflationary period ends, the BoC expects CPI inflation to moderate as “base-year effects dissipate and excess capacity continues to exert downward pressure.”

Looking Forward

Despite some encouraging signals, the Bank noted that there is still considerable economic slack in the system “and a great deal of uncertainty about the evolution of the virus and the path of economic growth.” The Bank sees the spread of more transmissible variants of the COVID-19 virus providing the “largest downside risk to activity.” To no one’s surprise, it also observed that localized outbreaks and lockdown restrictions “could contain growth” and “add choppiness” to the recovery.

It also noted that the Canadian labour market is “a long way from recovery,” with employment still well below pre-pandemic levels. Low-wage workers, young people and women have “borne the brunt of the job losses” according to the Bank.

As a result of its analysis, BoC’s Governing Council remains of the view that the economic recovery continues to require extraordinary monetary policy support in the form of a continuation of its Quantitative Easing program.

The Bottom Line

The Bank remains committed to holding its policy interest rate at the effective lower bound until economic slack is absorbed so that its 2% inflation target is “sustainably achieved.” In the Bank’s January projection, this does not happen until sometime in 2023.

To reinforce this commitment and “keep interest rates low across the yield curve,” the Bank will continue its QE program until the recovery is well underway.

BoC’s next scheduled policy announcement is April 21, 2021 and will be accompanied by the release of the Bank’s latest Monetary Report.

Published by: First National Financial LP on March 10, 2021.