The Bank of Canada maintained it’s overnight target rate at 0.25 %. This means all variable rate mortgage and credit line holders will remain steady in their variable rate. Prime rate is currently 2.45% with the majority of Canadian lenders (with some being at 2.60%).
The bank is also continuing its quantitative easing program, with large scale asset purchases of at least 5$ billion per week. This is helping keep the mortgage market flow smoothly and is helping to push fixed mortgage rates lower. Fixed and variable rates are currently the lowest in history hovering at 2% or lower depending on borrower qualifications. The Bank expects this strong reopening phase to continue and to be followed by a protracted and uneven recuperation phase. Pace of recovery remains highly dependent on COVID-19 and protocols on social distancing measures.
The United States has had a stronger rebound than expected, while economic performance among emerging markets has been mixed. Most prices have remained accommodative, Although oil prices remain weak. In Canada GDP fell by 11.5% resulting in a decline of just over 13% in the first half of the year. All components of aggregate demand weakened, which was expected.
As our economy reopens, we are seeing a faster bounce back then anticipated in July. Core funding markets are functioning well, this has led to a decline in the use of the Bank’s short term liquidity programs. We are working to support household spending and business investment by making borrowing more affordable.
Household spending has rebounded sharply over the summer, we had stronger then expected goods consumption and housing activity largely reflecting demand. There is a large but uneven rebound in employment. Our foreign demand has been strengthening due to our exports, but our numbers are still below pre pandemic. The Bank continues to expect the recuperation phase to be slow and choppy as we cope with COVID uncertainty and structural challenges.
As the economy moves from COVID 19 restrictions to recovering, it will continue to require significant monetary policy support. Which will keep interest rates low for an extended period of time.