Will Weak Jobs Growth Keep Canadian Interest Rates Lower?

In an effort to help kick-start the Canadian economy after it dipped into a recession in 2009, the Bank of Canada artificially lowered its overnight lending rate. By lowering the lending rate, the Bank of Canada was hoping banks would lend more money to businesses and people.

And for the most part, it worked, according to the experts at Canadalend.com ; Canada avoided the same kind of crippling recession to hit the United States and many other major global economies. However, the Canadian economy has not rebounded as quickly as many had hoped.

As a result, the Bank of Canada has held its key interest rate at one percent since September 2010; Canadian interest rates have actually been at or near zero for 68 months. The central bank signalled it wouldn’t start to raise rates until the Canadian economy was on sustainable footing.

Most didn’t think that would happen until mid-2015. This is good news for first-time home buyers or those looking to take out a second or third mortgage because the overnight lending rate impacts the rate banks offer to borrowers for loans, mortgages, and savings.

But recent economic data suggests the Canadian economy is struggling more than people thought, and it’s quite possible the Bank of Canada will not raise interest rates until mid-2016.

In July, Statistics Canada tallied the addition of just 200 jobs to the economy, far fewer than predicted; analysts were expecting a gain of 25,400 after posting a loss of 9,400 in June. The poor hiring numbers mean the Bank of Canada have little choice but to keep ultra-low borrowing costs near record lows deep into next year—and according to some, maybe even beyond. (Source: Carmichael, K., “Surprisingly negative jobs report supports low-rate stance,” The Globe and Mail ,August 8, 2014; www.theglobeandmail.com/report-on-business/economy/unemployment-rate-falls-to-7-per-cent-despite-minor-jobs-gain/article19967683/.)

When it comes to getting buying your first home, the ultra-low interest rate environment is welcome news. That’s because the more your mortgage costs, the less affordable it is to buy a home. Lower interest rates also free up capital that can be put to better use elsewhere.

Today, five-year fixed-rate mortgages are available in the 2.99% range. Five-year variable-rate mortgages are available in the 2.40% range.

The recent jobs data continues to point to a struggling economy. For potential home buyers, it looks like fixed and variable interest rates are going to stay low for the foreseeable future.

If you’re interested in seeing what kind of mortgage you qualify for, contact the independent, licensed mortgage experts at Canadalend.com. Not only will we help you get pre-approved in 24-hours or less, but we’ll also draw from hundreds of banks and lenders to ensure you get the mortgage best suited to meet all your needs.