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Bank of Canada maintains overnight rate at 0.25%

The Bank of Canada announced today that the overnight rate of 0.25% will hold. The Bank rate and deposit rate will hold at 0.50% and 0.25% respectively. The overnight rate is the interest rate at which major financial institutions borrow and lend money amongst themselves. The lower the overnight rate is, the less expensive it is for Canadian consumers to borrow money. Canada’s economy continues to recover from the coronavirus pandemic, exemplified by a GDP growth of 9.6% in the final quarter of 2020. GDP growth in the first quarter of 2021 is also expected to be positive, contradicting early forecasts in January. Consumers and businesses adapting to current restrictions and the continued surge of the housing market are key contributors to the recovery of the economy. While the economy has improved, there still remains economic slack given the uncertainty of the virus and the journey to economic growth. The …
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Strong Canadian Economic Growth in Q4 and January

This morning’s Stats Canada release showed that economic growth in the final quarter of last year was a surprisingly strong 9.6% (annualized). The surge in growth in January was even more interesting, estimated at a 0.5% (not annualized) pace. If these numbers pan out, it means that Canada did not suffer a contraction during the second wave and ensuing lockdown. The January figure is noteworthy in that retail sales plunged as nonessential stores were closed in key parts of the country as we faced surging numbers of COVID cases. The strength came from resources, housing and government spending and the mild weather likely helped. At its last meeting in January, the Bank of Canada (BoC) estimated that Q4 growth would come in at 4.8% (half the actual 9.6% pace) and that there would be a net contraction in Q1 of this year. The strength in Q4 emanated from very hot …
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Bank of Canada Still Expects No Rate Increases Until 2023

Published by Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres For the original article, CLICK HERE. The Bank of Canada released its January Monetary Policy Report (MPR), showing they expect to keep overnight interest rates at its “effective lower bound” of 0.25% until 2023 (see chart below). To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its Quantitative Easing (QE) program–buying $4 billion of Government of Canada bonds every week until the recovery is well underway. The central bank indicated it could pare purchases once the recovery regains its footing. According to the Bank’s press release, “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023.” Officials are apparently optimistic about the economy’s prospects …
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Could the BoC be considering a micro cut to Canada’s overnight lending rate?

The chance of a “micro-cut” to the Bank of Canada’s overnight rate has increased due to the economic impact of the coronavirus pandemic. Industry experts are anticipating a cut of less than 25 basis points. The lower the overnight rate is, the less expensive it is for consumers to borrow money. The potential decrease in the rate is due to the need for more widespread financial stimulus to the Canadian economy, says Andrew Kelvin, chief Canada strategist at TD Securities. A micro-cut like this has not occurred since the implementation of the overnight rate in February 1996. A cut to the overnight rate could increase spending, as seen in the boost to the Canadian housing market due to historically low borrowing costs. The delayed rollout of the COVID-19 vaccine as well as the decline in jobs are the main factors of a slow Canadian economy in 2021. The Bank of …
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