on October 30, 2019 
Well, the Election was interesting, wasn’t it? With new Liberal minority government the future for mortgage rates is still a bit up in the air. Today, as expected, the Bank of Canada (BOC) decided to hold their prime lending rate at 1.75%, which means most banks and credit unions will keep their consumer Prime Rates at 3.95% (so no immediate changes to customer rates for variable mortgages and lines of credit).
South of the border, the U.S. Federal Reserve just announced a quarter percent rate drop, the third interest rate cut this year (federal funds rate will now be between 1.5 – 1.75%). The reduction is largely driven by a slowing U.S. economy and uncertainty caused by the trade tensions between the U.S. and China. However, they indicate that they don’t expect further rate drops to be needed for the foreseeable future.
Why does the U.S. Fed policy matter? Quite simply, it comes down to exports and currency values. The U.S. is our largest trading partner and many of our industries rely heavily on selling their products south to the U.S. market. When the U.S. Fed lowers their lending rate, it causes the U.S. dollar to weaken compared to the Canadian dollar, which makes our exports more expensive for U.S. buyers. U.S. buyers then buy less Canadian products and that hurts our Canadian economy.
When this headwind starts to show up in our Canadian economic data, the BOC will be forced to reduce our Prime Lending rate to both stimulate our economy and devalue the Canadian dollar (to help our exports). So barring any other mitigating or contrary factors arising, we expect a quarter percentage rate drop from the BOC in the winter or spring.
With that said, international markets and geo-political situations can change quickly and unexpected events can throw everything off course, so we believe it’s wise to use caution and common sense when making big mortgage decisions. For most clients on a primary residence mortgage, we recommend choosing the best current mortgage option available now rather than making a big bet based on where people think rates ‘might’ be heading.
