Bank of Canada maintains overnight rate at 1 per cent

As expected the Bank of Canada maintained its overnight rate at 1% (bank prime rate is 3%). In Canada the economic recovery is proceeding broadly as expected, and the US economy continues to grow at a modest pace. The disasters that struck Japan as well as the continued crisis and economic instability in in Europe, coupled with the high CDN dollar has been key factors in the hold on rates. Expect the rates to hold through the summer.

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BoC rate hike on hold until September: RBC

Due to the uncertainty of the speed of the economic recovery in Europe and its potential spillover effect in to Canada, The Bank of Canada plans to delay any rate hikes until September 2011. Initially the BoC had planned to start to raise interest rates as early as this July.

Dawn Desjardins, assistant chief economist with RBC states “combined with already-present downside risks to domestic growth in the second quarter, the Bank of Canada is likely to remain on the sidelines longer than we previously thought. Complicating the outlook are global developments with the European sovereign debt crisis bringing fiscal and debt rating concerns to the forefront for investors. In the United States, economic surprises have been to the downside.”

So far, the Canadian economy looks to be holding steady with data suggesting 0.3% growth in March after a dip in February. Monthly growth figures put the economy on pace for 3.7% growth with risks on the upside.

Persistent strength in housing and growth in household credit, however, means the BoC cannot wait too long before taking action to avoid inflationary pressure.

Click here to read the complete article from Eric Lam of the Financial Post.

Fixed vs. variable mortgages: How to choose

There seems to be a common thread among economists when it comes to deciding which rate is better, a variable or a fixed rate mortgage. YOu may be surprised to hear that the difference over the the long run is likely to be minimal.

Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.

He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.

The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.

“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”

That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.

Click here to read the full article from Moneyville.