Bank of Canada Interest Rate Holds at 0.25%: June 2020

The Bank of Canada interest rate is remaining at 0.25% for June 2020.

On June 3, 2020, the Bank of Canada (BOC) announced they are maintaining the overnight rate of 0.25%, which came into effect on March 27, 2020.

This was not a surprise as the BOC had called the 0.25% rate the “effective lower bound,” indicating that the interest rate will not go any lower. As the COVID-19 pandemic is still ongoing, and the Canadian economy still affected, most forecasts agreed there would not be a rate increase this month.

However, while the BOC did not change the overnight interest rate, they did scale back some of their market operations as they noted that financial conditions were improving.

They reduced the frequency of the term repo operations to once per week and adjusted the program to purchase bankers’ acceptances to bi-weekly operations.

The BOC will continue to monitor the Canadian economy during the COVID-19 pandemic.

“Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy,” the BOC stated.

“This impact appears to have peaked, although uncertainty about how the recovery will unfold remains high.”

What Does This Mean for the Canadian Housing Market?

Interest rates appear to be staying low for at least the next month-and-a-half (the next BOC announcement is July 15, 2020), however, how low they stay will depend on economic recovery from COVID-19.

As the economy continues to feel pressure, some Canadians are worried about their ability to afford a home.

Canadian Mortgage Trends reported that 20% of Canadian respondents to a new survey say they believe they will never be able to purchase a home and will instead become “forever renters.”

This was most common among those born before 1946 at 94%, followed by Baby Boomers (61%), Gen X (41%), and millennials (18%).

Better Dwelling reported that one concern for real estate investors could be the Consumer Price Index (CPI) inflation rate, which has declined to near zero.

While financial conditions are showing some signs of improvement, the BOC said that they will be monitoring those signs closely.

Read the full June 3 BOC release: https://www.bankofcanada.ca/2020/06/fad-press-release-2020-06-03/

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