Bank of Canada Rate Announcement Oct 28th, 2020
Diane Buchanan • October 28, 2020
The Bank of Canada today maintained its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent. The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program. The Bank is recalibrating the QE program to shift purchases towards longer-term bonds, which have more direct influence on the borrowing rates that are most important for households and businesses. At the same time, total purchases will be gradually reduced to at least $4 billion a week. The Governing Council judges that, with these combined adjustments, the QE program is providing at least as much monetary stimulus as before.
The global and Canadian economic outlooks have evolved largely as anticipated in the July Monetary Policy Report (MPR), with rapid expansions as economies reopened giving way to slower growth, despite considerable remaining excess capacity. Looking ahead, rising COVID-19 infections are likely to weigh on the economic outlook in many countries, and growth will continue to rely heavily on policy support.
In the United States, GDP growth rebounded strongly but appears to be slowing considerably. China’s economic output is back to pre-pandemic levels and its recovery continues to broaden. Emerging-market economies have been hit harder, especially those with severe outbreaks. The recovery in Europe is slowing amid mounting lockdowns. Overall, global GDP is projected to contract by about 4 percent in 2020 before growing by just over 4 ½ percent, on average, in 2021–22.
Oil prices remain about 30 percent below pre-pandemic levels. Meanwhile, non-energy commodity prices, on average, have more than fully recovered. Despite continued low oil prices, the Canadian dollar has appreciated since July, largely reflecting a broad-based depreciation of the US dollar.
In Canada, the rebound in employment and GDP was stronger than expected as the economy reopened through the summer. The economy is now transitioning to a more moderate recuperation phase. In the fourth quarter, growth is expected to slow markedly, due in part to rising COVID-19 case numbers. The economic effects of the pandemic are highly uneven across sectors and are particularly affecting low-income workers. Recognizing these challenges, governments have extended and modified business and income support programs.
After a decline of about 5 ½ percent in 2020, the Bank expects Canada’s economy to grow by almost 4 percent on average in 2021 and 2022. Growth will likely be choppy as domestic demand is influenced by the evolution of the virus and its impact on consumer and business confidence. Considering the likely long-lasting effects of the pandemic, the Bank has revised down its estimate of Canada’s potential growth over the projection horizon.
CPI inflation was at 0.5 percent in September and is expected to stay below the Bank’s target band of 1 to 3 percent until early 2021, largely due to low energy prices. Measures of core inflation are all below 2 percent, consistent with an economy where demand has fallen by more than supply. Inflation is expected to remain below target throughout the projection horizon.
As the economy recuperates, it will continue to require extraordinary monetary policy support. The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our current projection, this does not happen until into 2023. The Bank is continuing its QE program and recalibrating it as described above. The program will continue until the recovery is well underway. We are committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.
The next scheduled date for announcing the overnight rate target is December 9, 2020. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on January 20, 2021.
Cashback Mortgages: Are They Worth It? Here’s What You Need to Know If you’ve been exploring mortgage options and come across the term cashback mortgage , you might be wondering what exactly it means—and whether it’s a smart move. Let’s break it down in simple terms. What Is a Cashback Mortgage? A cashback mortgage is just like a regular mortgage—but with one extra feature: you receive a lump sum of cash when the mortgage closes . This cash is typically: A fixed amount , or A percentage of the total mortgage , usually between 1% and 7% , depending on your mortgage term and lender. The money is tax-free and paid directly to you on closing day. What Can You Use the Cashback For? There are no restrictions on how you use the funds. Here are some common uses: Covering closing costs Buying new furniture Renovations or home upgrades Paying off high-interest debt Boosting your cashflow during a tight transition Whether it’s to help you settle in or catch up financially, cashback can offer a helpful buffer— but it comes at a cost . The True Cost of a Cashback Mortgage Here’s the part many people overlook: cashback mortgages come with higher interest rates than standard mortgages. Why? Because the lender is essentially advancing you a small loan upfront—and they’re going to make that money back (and then some) through your mortgage payments. So while the upfront cash feels like a bonus, you’ll pay more in interest over time to have that convenience. Breaking Down the Numbers It’s hard to give a blanket answer about how much more you’ll pay since it depends on: Your interest rate The cashback amount The mortgage term Your payment schedule This is why it’s important to run the numbers with a mortgage professional who can help you compare this option with others based on your personal financial situation. Are You Eligible for a Cashback Mortgage? Not everyone qualifies. Cashback mortgages generally come with stricter requirements . Lenders often want to see: Excellent credit history Strong, stable income Low debt-to-income ratio If your mortgage file includes anything “outside the box”—like being self-employed or recently changing jobs—qualifying for a cashback mortgage might be tough. What If You Need to Break the Mortgage? This is one of the biggest risks with cashback mortgages. If your circumstances change and you need to break your mortgage early, you could be on the hook for: Paying back some or all of the cashback you received, and A prepayment penalty (typically the interest rate differential or 3 months’ interest—whichever is higher) That can be a very expensive combination. So if there’s even a chance you might need to sell, refinance, or move before your term is up, a cashback mortgage might not be the best fit. Should You Consider a Cashback Mortgage? Maybe—but only with eyes wide open. Cashback mortgages can be helpful in the right scenario, but they’re not free money. They’re a lending tool that benefits the lender , and the key is knowing exactly what you’re agreeing to. Final Thoughts: Talk to an Expert First Choosing the right mortgage isn’t just about the lowest rate or the biggest perk—it’s about making a choice that fits your whole financial picture. If you’re considering a cashback mortgage, or just want to explore all your options, let’s talk. As an independent mortgage professional , I can help you weigh the pros and cons of various products, so you can make a confident, informed decision. Have questions? I’d be happy to help—reach out anytime.
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. For anyone watching the mortgage market — whether you're renewing, purchasing, or simply keeping an eye on borrowing costs — here's a breakdown of what was announced and what it may mean for you.
