Central 1 Credit Union chief economist predicts low interest rates will continue



The chief economist of the BC and Ontario Credit Union Trade Association expects interest rates to stay low for some time to come.

Bryan Yu of Central 1 Credit Union predicts the Bank of Canada will not hike its policy rate until late 2022.

Yu does not see the bank “pulling the trigger too quickly”.

“Our point of view is that the bank is going to be more patient,” Yu told the Law during a telephone interview.

The low cost of borrowing has been a major driver of the housing market in Canada, and in British Columbia in particular. The bank cut its overnight rate three times in March 2020 to its lowest level of 0.25%.

This decision was aimed at containing the feared economic fallout in the face of the COVID-19 pandemic. Variable mortgage rates are influenced by the overnight rate of the bank.

Until March 2021, the bank maintained that it would maintain the rate until 2023.

However, the institution indicated in April that a hike could take place earlier, in 2022, after certain economic targets are met in the second half of this year.

In July 2021, Central 1 released its interest rate forecast, which projected the current rate of 0.25% to rise to 0.5% in the fourth quarter of 2022 and to 0.75 in the first quarter of 2023.

Yu said the Bank of Canada will likely want to see a stable economic recovery first before raising rates.

Meanwhile, yields on five-year Government of Canada bonds are also expected to rise. This means an increase in five-year fixed rate mortgages which are the most popular mortgage product in the country.

“We will see, I think, some modest movements in five-year rates during 2022,” Yu said.

Overall, the economist does not expect rate hikes that would shock the real estate market.

“It will always be a low rate environment,” Yu said.

In a May 5, 2021 report on the outlook for the British Columbia housing market, Yu wrote that higher mortgage rates “would quickly cool the market.”

However, “a sharp rate hike is unlikely given the lingering economic uncertainties, the excessive economic slowdown and the Bank of Canada’s key rate anchoring at current levels for the coming year.”

In the interview, Yu noted that even a higher than expected increase in interest rates can be handled by borrowers.

“They have been stress tested at a relatively higher rate than their actual contract rate,” he said.

Yu was referring to the stricter mortgage rules introduced by the Federal Office of the Superintendent of Financial Institutions and the Ministry of Finance.

Effective June 1, 2021, insured and uninsured mortgage applications should qualify for the benchmark rate of 5.25% or the lender offered rate plus 2%, whichever is greater.

The previous qualification rate was 4.79 percent. The new rules are intended to ensure that borrowers can afford higher payments if the financial situation changes.

With the stricter rules in place, Yu said, borrowers have “a lot of leeway” if interest rates rise more than expected.



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