Bank Holds Overnight Rate at One Percent, Financial Tips, General Interest, Household Budget, Housing Costs, Mortgage News, Residential Mortgages

The overnight rate held steady yesterday as the Bank of Canada announced that it would maintain its traget of 1 percent. This leaves the prime lending rate at 3 percent. It’s now been more than two years since the prime rate has increased, giving variable rate mortgage holders the upper hand on higher interest costs.

Highlights from the Release

As was predicted in the July’s Monetary Policy Report, global growth prospects have slowed, causing a decrease in activities across advanced and emerging economies. The U.S. continues to post lacklustre gains while growth in China and India is decreasing more quickly than expected from previously-rapid rates. Thankfully, the recession and economic crisis in Europe appears to be under control, although the future is still far from clear.

Growth remained steady here at home and is expected to increase in 2013. Consumption and business investment remain the principle drivers, which the Bank reports as being “very stimulative financial conditions.” Carney also mentioned that there are tentative signs that household spending may be cooling, even though household debt numbers continue to rise. Finally, a persistent Canadian dollar means that Canadian exports are projected to remain below their pre-recession peak until at least 2014.

To make a long story short, the Bank of Canada has its hands tied thanks to rocky global and domestic markets. With that being say, Bay Street experts believe that the Bank will continue to toe the line with a 1 percent interest rate until at least mid- to late-2013. Mind you, this date has been continuously pushed back since the Bank of Canada last raised its rates back in September of 2010. With that being said, most experts agree that a rate cut is probably unlikely this year.

The next Bank of Canada rate announcement is scheduled for October 23. A full update on the nation’s economic outlook, including risks to the projection and inflation rates, will be published October 24.

In Other News

While the Bank of Canada’s release takes an optimistic stance on household debt, a recent survey by the Canadian Payroll Association has revealed that 47 percent of Canadians are still living paycheque to paycheque. According to the data, these workers feel that they would be in financial dire straits if their pay was delayed as little as one week.

While worrying, this number is 10 percent lower than the one reported last year. Carney’s belief that Canadians are heeding the warning to cut consumer spending also appears to have some validity to it – 66 percent of the 3,5000 respondents from across Canada said they were trying to save more, up from 40 percent in last year’s survey.

It’s encouraging, but still not quite enough. Only 13 percent of respondents believe they have saved half or more of their retirement funds, and even then they’re not sure if it will be enough. Among those 50 and older who are currently contemplating retirement, close to 45 percent felt that they only had only banked about a quarter of the amount needed to retire comfortable. What’s more, only 34 percent of Canadians now believe that savings of between $500,000 and $1 million will be sufficient to support a comfortable lifestyle in retirement. A more realistic number appears to be between $1 and $3 million. What’s more, 41 percent believe they will need to work longer in order to cover expenses, including their mortgage.

The latest round of numbers has shown that household debt is now at a record 152 percent of disposable income. Not surprisingly, the Bank of Canada continues to warn consumers that hardships will be unavoidable once interest rates increase.

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