January 2022 Bank of Canada Interest Rate Update

January 26, 2022

Key points from the Bank of Canada January 2022 announcement:

  • The Bank of Canada surprises markets by holding the prime rate unchanged
  • The central bank expects inflation to peak in Q1 2022, and then ease back down to 3% by the end of the year without interest rate intervention
  • The BoC set a cautious tone for the year and set the stage for future increases as the year progresses.

 

Still on hold – the Bank of Canada defies expectations and maintains policy rate unchanged

It isn’t a question of if the Bank of Canada will raise the prime rate in 2022, but rather when.

The markets were betting with 80% probability that the BoC would start increasing today, but to the surprise of many, the BoC has opted for a prudent policy.

The BoC has a very fine line to walk. 

They need to address rising inflation in Canada by raising interest rates, but at the same time risk triggering a recession if they raise rates too quickly at a time when many households and small businesses are struggling. 

It’s my opinion that the Bank of Canada has taken the side of the Canadian household and small business. I’m proud of them for that. 

You can read the full press release here

What does this mean for mortgage rates?

Fixed rate mortgages, which are priced relative to the 5 year government of Canada bond yield, have been on the rise since December and already reflect where the market expects the Bank of Canada to go. 

My view is that the pricing is too high and we could see fixed rates ease back down below their ~3.00% threshold.

Variable rate mortgages remain very low, with rates ranging from 1.15% (insured) to 1.45% (uninsured). 

If you are currently in a variable rate mortgage and are concerned about “locking in” to a fixed rate, take a look at my recent blog post on the topic here.

The door is always open

If you’d like to discuss today’s decision and how it relates to your mortgage, please click here to schedule a convenient call time directly into my calendar.