Bank of Canada Rate Announcement June 3rd, 2020
Tara Gentles • June 3, 2020
The Bank of Canada today maintained its target for the overnight rate at the effective lower bound of ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent.
Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy. This impact appears to have peaked, although uncertainty about how the recovery will unfold remains high. Massive policy responses in advanced economies have helped to replace lost income and cushion the effect of economic shutdowns. Financial conditions have improved, and commodity prices have risen in recent weeks after falling sharply earlier this year. Because different countries’ containment measures will be lifted at different times, the global recovery likely will be protracted and uneven.
In Canada, the pandemic has led to historic losses in output and jobs. Still, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR). The level of real GDP in the first quarter was 2.1 percent lower than in the fourth quarter of 2019. This GDP reading is in the middle of the Bank’s April monitoring range and reflects the combined impact of falling oil prices and widespread shutdowns. The level of real GDP in the second quarter will likely show a further decline of 10-20 percent, as continued shutdowns and sharply lower investment in the energy sector take a further toll on output. Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery. While the outlook for the second half of 2020 and beyond remains heavily clouded, the Bank expects the economy to resume growth in the third quarter.
CPI inflation has decreased to near zero, as anticipated in the April MPR, mainly due to lower prices for gasoline. The Bank expects temporary factors to keep CPI inflation below the target band in the near term. The Bank’s core measures of inflation have drifted down, although by much less than the CPI, and are now between 1.6 and 2 percent.
The Bank’s programs to improve market function are having their intended effect. After significant strains in March, short-term funding conditions have improved. Therefore, the Bank is reducing the frequency of its term repo operations to once per week, and its program to purchase bankers’ acceptances to bi-weekly operations. The Bank stands ready to adjust these programs if market conditions warrant. Meanwhile, its other programs to purchase federal, provincial, and corporate debt are continuing at their present frequency and scope.
As market function improves and containment restrictions ease, the Bank’s focus will shift to supporting the resumption of growth in output and employment. The Bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway. Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.
Information notes
Tiff Macklem assumes his role as the Bank’s tenth Governor today. He participated as an observer in Governing Council’s deliberations for this policy interest rate decision and endorses the rate decision and measures announced in this press release.
The next scheduled date for announcing the overnight rate target is July 15, 2020. 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.
Tara Gentles
CANADIAN MORTGAGE EXPERT
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As patios wind down and pumpkin spice ramps up, fall is the perfect reset for your home—and your homeowner game plan. These quick wins boost comfort, curb appeal, and efficiency now, and set you up for a low-stress winter (and a strong spring market). 1) Safety & “silent leak” checks (Weekend-ready) Clean gutters & downspouts. Add leaf guards where trees overhang. Roof scan. Look for lifted shingles, cracked flashings, or moss. Seal the shell. Re-caulk window/door trim; replace weatherstripping. Test alarms. New batteries for smoke/CO detectors; add one near bedrooms. Why it matters: Prevent water intrusion and heat loss before storms roll in. 2) Heat smarter, not harder Furnace/boiler tune-up and filter change. Smart thermostat with schedules and geofencing. Draft hunt. Foam gaskets behind outlets, door sweeps on exterior doors. ROI tip: Efficiency upgrades lower monthly bills and can improve lender ratios if you’re eyeing a refinance later. 3) Fall-proof your yard (so spring you says “thanks”) Aerate + overseed + fall fertilize for thicker turf next year. Trim trees/shrubs away from siding and power lines. Mulch perennials and plant spring bulbs now. Shut off/bleed exterior taps and store hoses to avoid burst pipes. 4) Extend outdoor season (cozy edition) Portable fire pit or propane heater + layered blankets. Path/step lighting for darker evenings (solar or low-voltage). Weather-resistant storage for cushions/tools to preserve value. Neighborhood curb appeal: Warm lighting and tidy beds make a big first impression if you list in shoulder season. 5) Water management = winter peace of mind Re-grade low spots and add downspout extensions (2–3+ metres). Check sump pump (and backup). Look for efflorescence or damp corners in the basement. 6) Mini-renos that punch above their weight Entry/mudroom upgrade: hooks, bench, boot trays, closed storage. Laundry room tune-up: counter over machines, sorting bins, task lighting. Kitchen refresh: new hardware, tap, and under-cabinet lighting in one afternoon. Budget guide: Many of these land under a micro-reno budget—perfect for a modest line of credit. 7) Indoor air quality tune-up Deep clean vents and dryers (including the rigid duct). Add door mats (exterior + interior) to catch grit/salt. Houseplants or HEPA purifier for closed-window months. Fast Timeline (pin this to the fridge) Late August–September Gutters/downspouts, roof/caulking, HVAC service, lawn care, plant bulbs, exterior tap shut-off plan, path lighting. October Weatherstripping/sweeps, fire pit setup, organize mudroom/garage, test alarms, sump check, downspout extensions, dryer vent cleaning. Financing smarter: make your mortgage work for your home Annual mortgage check-in. As rates, income, and goals evolve, a quick review can free up cash flow or open options for a small fall project budget. HELOC vs. top-up refinance. For bite-size projects, a HELOC can be flexible. For bigger renos you plan to pay down, a top-up refi might make more sense. Bundle & prioritize. Knock out the high-impact, low-cost items first (air sealing, safety, water management) before the cosmetic upgrades. Not sure which route fits your fall plans? We’ll run the numbers and map the best financing path for your specific budget and goals. Quick Checklist (copy/paste) ☐ Clean gutters/downspouts; add guards ☐ Roof & flashing visual check ☐ Re-caulk, weatherstrip, add door sweeps ☐ HVAC service + new filter ☐ Aerate/overseed/fertilize; trim trees; plant bulbs ☐ Path & entry lighting ☐ Drain/bleed outdoor taps; store hoses ☐ Downspout extensions; sump test ☐ Dryer vent cleaning ☐ Mudroom/garage organization ☐ Schedule mortgage review / discuss HELOC vs refi Ready to make fall your low-stress season? Book a quick fall mortgage check-up—15 minutes to see if a small credit line or a tweak to your current mortgage could cover your priority projects without straining cash flow.
If you're not all that familiar with the ins and outs of mortgage financing, the term "second mortgage" might cause a bit of confusion. Many people incorrectly assume that a second mortgage is arranged when your first term is up for renewal or when you sell your first home. They think that the next mortgage you get is your "second mortgage." This is not the case. A second mortgage is an additional mortgage on a single property, not the second mortgage you get in your lifetime. When you borrow money to buy a house, your lawyer or notary will register your mortgage on the property title in what is called first position. This means that your mortgage lender has the first claim against the sale proceeds if you sell your property. If you happen to default on your mortgage, this is the security the lender has in repossessing your property. A second mortgage falls in behind the first mortgage on your property title. When you sell your property, the lawyers will use the sale proceeds to pay off your mortgages in sequence, the first position mortgage is paid out first, and the second mortgage is paid out second. After both mortgages are paid off completely, you get the remaining equity. When you secure a second mortgage, you continue making payments on your first mortgage as per your mortgage agreement. You must also then fulfill the terms of the second mortgage. So why would you want a second mortgage? Well, a second mortgage comes in handy when you're looking to access some of your home equity, but you either have excellent terms on your first mortgage that you don't want to break, or you’d incur a huge penalty to break your first mortgage. Instead of refinancing the first mortgage, a second mortgage can be a better option. A second mortgage is often used as a short-term debt consolidation tool to help provide you with better cash flow. If you’ve accumulated a considerable amount of high-interest unsecured debt, and you have equity in your home, you can secure a second mortgage to lower your overall cost of borrowing. If you'd like to know more about how a second mortgage works, or if you'd like to discuss anything related to mortgage financing, please connect anytime!
