December 2021 Bank of Canada Interest Rate Update

December 8, 2021

Key points from the Bank of Canada December 2021 announcement:

  • The Bank of Canada holds the overnight lending rate at 0.25%. There are no changes to the retail prime rate, which currently sits at 2.45%.
  • The central bank warns of elevated inflation in the first quarter of 2022, but expects inflation to drop back down to the target 2% in the middle of the year.
  • The BoC still sees the need to support the Canadian economy with low rates to ensure we have solid growth into late 2022 and beyond.

 

The Bank of Canada maintains its overnight lending rate for the final meeting of 2021.

For the final meeting of 2021, the Bank of Canada met expectations by announcing the overnight lending rate would remain unchanged to wrap up the year. 

Pressure has been rising on the central bank to address the increasing inflation risk. Markets were betting that after 7 back-to-back months of high inflation data, the BoC can’t call the trends “transitory” any longer, and will likely need to address them with a rate hike in the first half of 2022. 

The Canadian economy is showing very strong signs of a full recovery sooner than expected – last week’s job numbers were 4 times higher than anticipated, and slack is quickly being taken up in the economy. 

However, the tone was surprisingly muted from the Bank of Canada. 

In today’s press release, the Bank of Canada acknowledged the inflationary pressures but still believes they will resolve themselves by mid-2022 as supply bottlenecks work themselves out. As such, the BoC still believes the Canadian economy requires extraordinary support via a low policy rate. 

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, are already reflecting the anticipated increases to the Bank of Canada’s rate in 2022. Currently, 5 year fixed rates range from 2.64% (insured) to 2.89% (uninsured). 

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

It’s not a question of “IF” the Bank of Canada will raise rates in 2022, but rather “HOW MANY”? 

If you are currently in a variable rate mortgage and are concerned about “locking in” to a fixed rate, I’m happy to chat about your unique circumstances. Generally, I would advise you to hold on to your variable rate and ride out the next few months. The gap between fixed and variable rates is too wide to justify a conversion. 

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.