When will Rates go up?

There's a new sheriff in town at the Bank of Canada.  Tiff Macklem recently took over as governor for Stephen Poloz, and he has already been much more transparent on what he sees for future rate increases.

The Bank of Canada will be using "forward guidance" to inform when they will be increasing rates and indicating that they will not be raising rates until capacity is absorbed and inflation hits a "healthy" target of 2% on a sustainable basis.  The Bank estimates that this could take two-years if not longer.  Their most pessimistic views of the economic recovery see that interest rates will remain low for a very long time.  

The response to this has been interest rates at various lenders dropping into record low territory.  No one is quite sure when rates will go up and this has meant that borrowers are benefiting with a very low cost of borrowing.

For example, if you were to have borrowed on a mortgage and amortized the payment over 30-years you would have been paying more in interest than the principal for at least the first two years.  Today, you are paying more towards the principal on day one.  

Governor Macklem said in the press conference that what he wants Canadians to take away from the Bank of Canada’s actions is “Canadian interest rates are very low and will remain very low for a very long period”. The reopening of the Canadian economy is well underway. Economic activity hit bottom in April and began expanding in May and accelerated in June. About 1.25 million of the 3.0 million jobs that were lost in March-April, were added in May and June.  

We're going to be hearing about record year-over-year job gains for months, and the economy will still not be fully recovered.  Enjoy the low cost of borrowing!