The Canadian government's fiscal tools could mean an extended low-rate environment
The Bank of Canada’s (BOC) quantitative easing (QE) program and commitment to keeping the overnight policy rate frozen at 0.25% for the foreseeable future could mean low mortgage rates will be around “for some time,” according to an economist at the British Columbia Real Estate Association (BCREA).
In his latest mortgage rate forecast, BCREA chief economist Brendon Ogmundson said the fiscal tools employed by the central bank could mean that the current low-rate environment will be sticking around for the long-term.
Read more: Analyst: BoC won't budge in policy rate, QE programs despite inflation trends
“Along with a massive expansion of its balance sheet to facilitate QE, the Bank of Canada has also reaffirmed its plans to keep its overnight policy rate at 0.25 per cent until it sees slack in the Canadian economy fully absorbed,” said Ogmundson. “Given current forecasts for economic growth, that may not occur until 2023, meaning these low rates will be around for quite some time.”
While the recent approval of a COVID-19 vaccine may lead to a faster rate of recovery, Ogmundson said that it still “remains to be seen whether the impact of this brighter outlook will overcome the dark winter of rising COVID-19 cases.”
“However, as the eventual recovery does kick into what we expect will be high gear early next year, the speed and strength of that recovery will dictate the eventual duration of the Bank of Canada’s QE,” he said.
