The Bank of
Canada (BoC) again left the Prime rate unchanged this week. However, the
tone of the statements from the BoC indicated that the economy required more
stimulus and that current inflation is well below the desired level of
2%. Although these comments have many analysts predicting a rate
cut in the future, the more likely scenario is that the BoC is talking down the
economy in an effort to actually stimulate it without touching rates.
Canada’s economy is very dependent on exports and therefore the relative value
of the Canadian dollar can impact economic growth tremendously. As the
relative value of our dollar decreases, our goods become cheaper to consumers
in other countries. By hinting that there is potential for a rate
decrease in the future, the BoC is helping to drive the Canadian dollar
downward. Yesterday, the dollar was as low as $0.935 although it has
rebounded to just over $0.94 today. A lower dollar is beneficial
for many economic segments of Canada, especially exports, but it will also
benefit the tourism industry as it becomes cheaper to visit Canada.
The Canadian dollar is expected to continue a slow decline for the next
month or two, so any consumers looking to purchase US dollars in the short term
are advised to lock in a price quickly.
The US economy continues to improve and the latest estimate of third quarter growth at 3.6% would be the fastest growth in almost two years. This news, along with a strengthening labour market, is causing analysts to revise their estimates of when the Federal Reserve will begin to reduce the current quantitative easing stimulus program. The tapering process is not expected until February or March, but it is not impossible that it could happen sooner. This would be quite a shock to the markets and would likely cause a spike in bond yields, and therefore a spike in fixed term interest rates.
In Canada, the recent BoC statements continued to push down the Canadian dollar slightly and reinforced the view that the Bank of Canada will not change the Prime rate until 2015, if not later. Bond yields are up slightly this week but most lenders are holding steady on rates but offering a few rate specials with specific time limits. Consumers are strongly advised to get rate holds in place for potential purchases, refinances or renewals as a 120 day rate hold will last until early April. This should be long enough to ride out the uncertainty of debt ceiling talks in January and any potential changes to the expected tapering timetable in the US.
Please remember that 80% financing is available for qualified US residents at great rates!
I am always available to assist you and your clients.
Jason McLean BSc, AMP
The Mortgage Centre: Garibaldi Mortgage