Bank rate decision may slow switches

Bank rate decision may slow switches

A decision Tuesday to keep the Bank of Canada’s overnight rate steady – something expected to hold for all of 2013 – will likely slow switches for brokers.

For its 18th consecutive review, the Central Bank held that key rate steady, with bank watchers now suggesting it will remain at a standstill for all of 2013.

The Bank of Canada is blaming the decisionl on “economic activity in the third quarter,” which was weaker “owing in part to transitory disruptions in the energy sector.”

That situation isn’t expected to change rapidly, say analysts,  also pointing to the uncertainty south of the border around the “fiscal cliff” conflict.

For brokers, it suggests that they will be increasingly reliant on new mortgages and not the kind of switches resulting for borrowers looking to get into rock-bottom fixed rates.

In fact, the incentive for clients in the middle of five-year ARMs to get out has been significantly reduced by the protracted 1 per cent rate for the prime-setting overnight. It means the uncertainty normally attached to variable rates has been reduced, said one broker Tuesday.

Still, all Canadians will have to grapple with uncertainty in the short-term, says Mark Carney, governor of the Bank of Canada. He points to the financial situation south of the border, especially with the recent discussion of the U.S. and its upcoming fiscal cliff negotiations.

If that scenario unfolds, interest rates in Canada would likely plummet, as the Bank moves to shore up economic activity against possible recession.