Bank of Canada doesn’t plan to raise interest rates until 2023

The central bank reiterated its plan to keep the overnight rate unchanged over the next few years in order to support an economic recovery which is already restrained by the second wave of COVID-19.

On Wednesday, the Governor Tiff Macklem kept the key lending rate at 0.25%. According to the Bank of Canada, it’s the lowest level without harming the financial system, and it plans to hold it there until 2023. The BoC will also keep purchasing government bonds to reduce longer-term borrowing costs and support today’s levels of stimulus.

Overall, it suggests that the Bank will continue its unprecedented measures that have helped Canada start recovering sooner than expected from the worst of the economic crisis, and Macklem doesn’t seem to be ready for reducing the efforts.

The Bank doesn’t expect Canada’s economy to fully absorb slack before 2023, keeping inflation below the 2%. It also reiterated its commitment to hold the overnight rate near zero until the slowdown is absorbed and inflation reaches the target level.

However, the adjustments to the quantitative easing program were quite unexpected, so the BoC decided to reassure markets that the general influence on stimulus will not change.

According to the BoC, the economy will contract by 5.7% in 2020, and then recover by 4.2% in 2021. Nevertheless, there may be a sharp slowdown at the end of 2020, as authorities introduce new restrictions on businesses because of an increase in coronavirus cases.

The central bank’s rate decisions have a strong influence on Canadian borrowers and savers. While fixed-rate mortgages depend on the bond market, variable-rate mortgages are affected directly by the BoC’s rate.

Today, there are practically no wrong answers for Canadian borrowers choosing the mortgage type. In case you need certainty, you can get a historically low fixed rate. If you are ready for some risk and you need flexibility, a variable rate is also an option as the central bank promised not to raise it over at least two years.