Bank of Canada Rate Announcement Sept 4th, 2019

Expert Financing • September 4, 2019

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.

As the US-China trade conflict has escalated, world trade has contracted and business investment has weakened. This is weighing more heavily on global economic momentum than the Bank had projected in its July Monetary Policy Report (MPR). Meanwhile, growth in the United States has moderated but remains solid, supported by consumer and government spending. Commodity prices have drifted down as concerns about global growth prospects have increased. These concerns, combined with policy responses by some central banks, have pushed bond yields to historic lows and inverted yield curves in a number of economies, including Canada.

In Canada, growth in the second quarter was strong and exceeded the Bank’s July expectation, although some of this strength is expected to be temporary. The rebound was driven by stronger energy production and robust export growth, both recovering from very weak performance in the first quarter. Housing activity has regained strength more quickly than expected as resales and housing starts catch up to underlying demand, supported by lower mortgage rates. This could add to already-high household debt levels, although mortgage underwriting rules should help to contain the buildup of vulnerabilities. Wages have picked up further, boosting labour income, yet consumption spending was unexpectedly soft in the quarter. Business investment contracted sharply after a strong first quarter, amid heightened trade uncertainty. Given this composition of growth, the Bank expects economic activity to slow in the second half of the year.

Inflation is at the 2 percent target. CPI inflation in July was stronger than expected, largely because of temporary factors. These include higher prices for air travel, mobile phones, and some food items, which are offsetting the effects of lower gasoline prices. Measures of core inflation all remain around 2 percent.

In sum, Canada’s economy is operating close to potential and inflation is on target. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the current degree of monetary policy stimulus remains appropriate. As the Bank works to update its projection in light of incoming data, Governing Council will pay particular attention to global developments and their impact on the outlook for Canadian growth and inflation.

Information note

The next scheduled date for announcing the overnight rate target is October 30, 2019. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.

Rebecca Harrap & 
Wendy Whiting
EXPERT FINANCING

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For most Canadians, the down payment is the biggest hurdle to homeownership. A down payment is the initial amount you contribute toward your property purchase, while the lender covers the rest through a mortgage. By law, Canadian lenders can only finance up to 95% of a property’s value, which means you’ll need at least 5% down to qualify. If you’re putting down less than 20%, your mortgage must be insured through one of Canada’s three default insurance providers— CMHC, Sagen (formerly Genworth), or Canada Guaranty . This insurance comes at a cost, but it can be rolled into your mortgage amount. The less you put down, the higher the premium. Since saving a down payment can feel overwhelming, it helps to know the different sources you can draw from. Here are the most common options available to Canadian homebuyers: 1. Savings & Personal Resources The most straightforward source is your own savings. Lenders will ask to see a 90-day history of the funds in your account. Any large deposits outside of regular payroll must be explained with documentation—such as the sale of a vehicle or a transfer from an investment account. This requirement isn’t just red tape; it’s part of Canada’s anti-money laundering rules. 2. Proceeds from the Sale of a Property If you’ve recently sold another home, you can use the proceeds as a down payment on your new purchase. Proof of the sale—such as the final statement of adjustments from your lawyer—will be required. 3. RRSP Home Buyers’ Plan (HBP) First-time buyers can withdraw up to $35,000 each (or $70,000 as a couple) from their RRSPs to put toward a down payment under the federal Home Buyers’ Plan . The funds are withdrawn tax-free, but they must be repaid over a 15-year period. This is a popular option for buyers who have been steadily contributing to their retirement savings. 4. Gifted Down Payment With today’s housing prices, many buyers turn to family for help. A parent or immediate family member can provide a gift that makes up part—or even all—of the required down payment. The lender will require a signed gift letter confirming that the money is a true gift (with no repayment expected) and proof that the funds have been deposited into your account. 5. Borrowed Down Payment In some cases, you may be able to borrow your down payment. This option is usually available only if you have strong credit and sufficient income. The payments on the borrowed funds are factored into your debt service ratios, so affordability is key. Lenders typically use 3% of the outstanding balance when calculating the additional payment. The Bottom Line A down payment doesn’t have to come from just one source—it can be a combination of savings, gifted funds, RRSPs, or other resources. What matters most is being able to show where the money came from and that it meets lender requirements. If you’d like to explore your options or learn how much you might qualify for, it’s never too early to start the conversation. Connect with us today—we’d be happy to help you create a plan and take the first steps toward homeownership.