By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
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Just as markets showed signs of recovery, the news about the Omicron Covid-19 variant may have thrown a wrench into the Central Bank's plans to move ahead with rate hikes.
The Bank of Canada bought $5 billion worth of bonds during the pandemic to keep interest rates low; the process is called Quantitative Easing. But since the economy was getting on its feet through mass vaccination, the central Bank forecasted a steady rise in fixed rates and an increase to variable rates as early as March of 2022.
It is now apparent that Omicron may cause the postponement to rate hikes, although the interest rates are still ahead of what the government initially proposed in order to meet inflation targets.
According to RBC senior economist Josh Nye, Omicron will delay some central bank rate hikes.
The Bank of Canada will meet this Wednesday, December 8, to deliver a rate decision for the end of 2021. It can choose to increase the current overnight lending rate, decrease or keep it the same. The BoC will have to factor in the present state of the economy, including GDP, employment data, and consider how any rate hikes will affect the housing industry that generates 300 percent more money than the country's GDP.
Here's a summary of what economists predict will happen this Wednesday:
NBC: ... we think the central bank will avoid raising its policy rate too quickly out of fear of triggering an abrupt landing of the housing market. (Source)
RBC: ... recent inflation and GDP data are consistent with BoC's October forecasts, and we continue to look for interest rate liftoff in April 2022. We think markets are over-priced for BoC tightening next year and expect Canada-UD spreads will narrow in 2022. (Source)
TD: "Both the BoC and the Fed are focused on employment gains, with the goal of closing in on maximum employment. But, threading the needle in an already elevated inflation environment could lead to a policy error. Central bankers are mindful that risks are two-sided. Hiking a little earlier and leaving sufficient time between policy decisions to monitor outcomes helps to mitigate the adverse impact of leaving policy rates too low for too long. The yield curve will continue to respond as the months roll forward, putting upward pressure on a wide array of lending rates from corporate bond yields to individual mortgage rates. The time for patience on monetary policy is ending." (Source)
CIBC: "With COVID still a headwind to growth in the next couple of quarters, we see the Canadian GDP and employment track under-performing the Bank of Canada's call, which would lean towards the first rate hike at near mid-year, rather than, as the market has it, in Q1." (Source)
Sarah Colucci is a senior mortgage consultant, working with Mortgage Edge, Canada's largest independent brokerage house.