Not everyone caught off guard by BoC announcement

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After much talk about the inevitable rise of interest rates, The Bank of Canada shocked many – but not all -- by lowering the overnight rate from one per cent to 0.75 per cent.

One real estate broker and consultant said that he wasn’t surprised by the rate cut as declining oil prices were affecting markets in Western Canada.

“Oil prices have been affecting the market out West so the Bank had to step in and do something,” said Ralph Fox, a real estate broker in Toronto, in an interview with MBN.

“There was a lot of speculation about how interest rates would rise and lot of people worry about nothing really. There are a lot of economists who have to rethink and reassess their predictions for 2015.”

The Bank of Canada made the announcement Wednesday, a move that will spare Western Canada, namely oil-producing Alberta, from being victim to a potential collapse, decline, and inflation.

“The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent,” the BOC wrote in an official release.

“This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada.”

With more money for consumers to play with, allowing some to pay more towards their debts, the rate change could drive clients to variable rate mortgages over fixed for first time homebuyers.

And while the drop is due, in large part, to a plummeting energy sector, the BOC remains optimistic about other industries – for now.

“The oil price shock is occurring against a backdrop of solid and more broadly-based growth in Canada in recent quarters,” the bank writes. “Outside the energy sector, we are beginning to see the anticipated sequence of increased foreign demand, stronger exports, improved business confidence and investment, and employment growth.”

Michelle Watson, a mortgage broker with The Mortgage Centre, said that the decision to reduce the interest rate will be welcoming to both existing homeowners and new homebuyers.

“Qualifying for a mortgage is tough and people might have more money to spend heading into the negotiating process,” said Watson.

“It could change the type of mortgage both existing homeowners and new homebuyers are able to get, which could afford them the property they really want, not the one they have to settle for.”

Watson did however warn consumers around the country to be careful due to the uncertainty that remains in the market and not to make any rash decisions without considerable thought and planning.

“Consumers have to be cautious. You never know what could happen in the market with oil prices. If they were to suddenly start going up and the BOC hiked rates back to original levels, things could change,” she said.

Fox, however, argued differently.

“The rates won’t climb back up for a while and the BOC won’t just hike rates back to previous levels or higher without serious consideration to the effects on the markets. It’ll be slow, incremental and almost psychological.” 

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