MORTGAGE RATES ON CRUISE CONTROL
Highlights:
• Financial market volatility keeping mortgage rates low
• Fiscal policy to the rescue?
• Bank of Canada unlikely to act on interest rates this year
Canadian bond yields fell to as low as 0.48 per cent in the first quarter of the year, though have since bounced back modestly to around 0.8 per cent.
The US Federal Reserve is likely to take a much more cautious approach to tightening than was widely expected, with the outside chance of no further increases to its overnight target rate this year. Without the added pressure on rates from tightening monetary policy in the United States, a somewhat stagnant Canadian economy and modest inflationary pressures will likely keep Canadian government bond yields near their current levels. The prospect of improved economic growth toward the end of the year or higher than expected inflation stemming from the pass-through effect of the low Canadian dollar to imports may prompt a modest rise in bond yields by year end.
While the one-year mortgage rate moved slightly higher at the end of 2015, the five-year posted mortgage rate has remained unchanged for almost an entire year at 4.64 per cent. Our forecast is for that trend to continue, with the five-year qualifying rate remaining unchanged for most of 2016.
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