Bank of Canada Summary October 2021
NEST NEWS AT A GLANCE
- BoC Announcement: 0.25%, No Change
- Prime Rate: 2.45%, No Change
- Rate forecast: Rates will rise, and the BoC admits this will happen sooner than originally expected.
- Economy: Inflation will continue to be elevated easing back to 2% by late 2022. The Bank will maintain the policy interest rate at the lower bound until this 2% inflation target is met.
- BoC's Full Statement: Click here
- Next Rate Meeting: November 10, 2021
BANK OF CANADA SUMMARY
An end to the Quantitative Easing Program. How will this affect mortgages?
The latest BoC announcement shares that the quantitative easing program, initially implemented to ease economic concerns and provide a low-rate environment over the past 18 months, will come to an end. As Canada’s recovery through the pandemic continues with strong vaccination numbers, the Bank intends to move forward into the reinvestment phase. At this time, the benchmark rate remains at 0.25% - and the Prime Lending Rate remains unchanged.
*A market notice outlining details of the reinvestment phase is now published on the Bank’s website.
An 18-year high inflation rate of 4.4% reported recently has elevated prices in many categories, including energy and housing. The BoC anticipates that inflation will continue to be elevated easing back to 2% by late 2022. The Bank will maintain the policy interest rate at the lower bound until this 2% inflation target is met.
When will rates rise? By how much? Fixed or variable? Is it time to lock-in?
We will follow-up with an in-depth review answering all questions mentioned above. There are fear-based statements making headlines regarding rates, yet none of us possess a crystal ball. Rates will rise, and the BoC admits this will happen sooner than originally expected. A quick response to some of the burning questions on the street:
- Raising rates too high or too fast to address an inflationary problem that will likely resolve itself, may do more harm than good. Canadians with record high mortgage balances are very sensitive to rate increases, and the BoC understands the negative impact that dramatic rate increases will have on the economy.
- Variable Rate Mortgages have outperformed fixed over the past 50+ years. The product attributes: the lowest rate, an ability to lock-in, and transparent breakage/low penalty. These are the reasons we still recommend this product.
For instance, if you are sourcing a $500,000 mortgage today, let’s look at what happens if you decide on Variable over Fixed, assuming:
- The BoC starts increasing the Overnight Rate by 0.25% every two months starting July 2022.
- They also continue to increase 6 times (1.5% total) - which is a very aggressive schedule, returning to pre-pandemic levels.
With all of this accounted for, choosing a Variable Rate Mortgage still outperforms fixed, saving $301.10 over the term.
Should you have questions about your existing or new mortgage, reach out to our team at Nest Mortgage today!




