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Bank of Canada Round-Up: Interest Rates Held for December 2018, Plans to Buy Government-Backed Mortgage Bonds

The Bank of Canada interest rate is remaining at 1.75% for 2018, after a December 5 announcement.

The Bank of Canada (BOC) decided to leave the overnight rate at 1.75%, at least until the next scheduled announcement on January 9, 2019. The reasons they cited for doing so include uncertain oil prices, trade conflicts, and a continued monitoring of Canadian household credit and regional housing markets.

Other factors included:

  • Global economic expansion moderating largely as expected.
  • The Canadian economy as a whole grew in accordance with the BOC projection, but business investment fell in the third quarter.
  • Inflation is just above target.

A week before the Dec. 5 interest rate release, the BOC announced plans to buy government-backed Canada Mortgage Bonds, beginning at the end of 2018 or in early 2019. The purchases will be made in the primary market on a non-competitive basis.

The BOC stated that this is for balance sheet management purposes and will have no implication on the monetary policy.

“The Bank will continue to adhere to its principles of neutrality, prudence and transparency and conduct its transactions in a manner that limits market distortions and minimizes impact on market prices,” the BOC said in a release.

The BOC’s decision to buy Canadian mortgage-backed securities could tamper interest rates from rising too quickly. Economists are widely predicting that rates will reach at least 2.5% in 2019.

Mortgage credit growth is falling to one of the lowest levels in history and Canadians owe more than $1.53 Trillion in mortgage debt.

Whether interest rates continue to rise or stay the same, Purview can help mortgage brokers and mortgage lenders manage risk and stay on top of trends.

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