Bank of Canada Maintains Overnight Rate Target and Unveils New Market Operations
Victor Anasimiv • April 15, 2020
The Bank of Canada today maintained its target for the overnight rate at ¼ percent, which the Bank considers its effective lower bound. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent. The Bank also announced new measures to provide additional support to Canada’s financial system.
The necessary efforts to contain the COVID-19 pandemic have caused a sudden and deep contraction in economic activity and employment worldwide. In financial markets, this has driven a flight to safety and a sharp repricing of a wide range of assets. It has also pushed down prices for commodities, especially oil. In this environment, the Canadian dollar has depreciated since January, although by less than many other currencies. The sudden halt in global activity will be followed by regional recoveries at different times, depending on the duration and severity of the outbreak in each region. This means that the global economic recovery, when it comes, could be protracted and uneven.
The Canadian economy was in a solid position ahead of the COVID-19 outbreak, but has since been hit by widespread shutdowns and lower oil prices. One early measure of the extent of the damage was an unprecedented drop in employment in March, with more than one million jobs lost across Canada. Many more workers reported shorter hours, and by early April some six million Canadians had applied for the Canada Emergency Response Benefit.
The outlook is too uncertain at this point to provide a complete forecast. However, Bank analysis of alternative scenarios suggests the level of real activity was down 1-3 percent in the first quarter of 2020, and will be 15-30 percent lower in the second quarter than in fourth-quarter 2019. CPI inflation is expected to be close to 0 percent in the second quarter of 2020. This is primarily due to the transitory effects of lower gasoline prices.
The pandemic-driven contraction has prompted decisive policy action to support individuals and businesses and to lay the foundation for economic recovery once containment measures start to ease. Fiscal programs, designed to expand according to the magnitude of the shock, will help individuals and businesses weather this shutdown phase of the pandemic, and support incomes and confidence leading into the recovery. These programs have been complemented by actions taken by other federal agencies and provincial governments.
For its part, the Bank of Canada has taken measures to improve market function so that monetary policy actions have their intended effect on the economy. This helps ensure that households and businesses continue to have access to the credit they need to bridge this difficult time, and that lower interest rates find their way to ultimate borrowers. The Bank has lowered its target for the overnight rate 150 basis points over the last three weeks, to its effective lower bound. It has also conducted lending operations to financial institutions and asset purchases in core funding markets amounting to around $200 billion.
These actions have served to ease market dysfunction and help keep credit channels open, although they remain strained. The next challenge for markets will be managing increased demand for near-term financing by federal and provincial governments, and businesses and households. The situation calls for special actions by the central bank. To this end, the Bank is furthering its efforts with several important steps.
Under its previously-announced program, the Bank will continue to purchase at least $5 billion in Government of Canada securities per week in the secondary market, and will increase the level of purchases as required to maintain proper functioning of the government bond market. Also, the Bank is temporarily increasing the amount of Treasury Bills it acquires at auctions to up to 40 percent, effective immediately.
The Bank is also announcing today the development of a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.
These measures will work in combination to ease pressure on Canadian borrowers. As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth. The Bank’s Governing Council stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.
Information note
The next scheduled date for announcing the overnight rate target is June 3, 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 on July 15, 2020.
Here is a copy of the Bank of Canada's Monetary Policy Report
for April 2020.
Can You Afford That Mortgage? Let’s Talk About Debt Service Ratios One of the biggest factors lenders look at when deciding whether you qualify for a mortgage is something called your debt service ratios. It’s a financial check-up to make sure you can handle the payments—not just for your new home, but for everything else you owe as well. If you’d rather skip the math and have someone walk through this with you, that’s what I’m here for. But if you like to understand how things work behind the scenes, keep reading. We’re going to break down what these ratios are, how to calculate them, and why they matter when it comes to getting approved. What Are Debt Service Ratios? Debt service ratios measure your ability to manage your financial obligations based on your income. There are two key ratios lenders care about: Gross Debt Service (GDS) This looks at the percentage of your income that would go toward housing expenses only. 2. Total Debt Service (TDS) This includes your housing costs plus all other debt payments—car loans, credit cards, student loans, support payments, etc. How to Calculate GDS and TDS Let’s break down the formulas. GDS Formula: (P + I + T + H + Condo Fees*) ÷ Gross Monthly Income Where: P = Principal I = Interest T = Property Taxes H = Heat Condo fees are usually calculated at 50% of the total amount TDS Formula: (GDS + Monthly Debt Payments) ÷ Gross Monthly Income These ratios tell lenders if your budget is already stretched too thin—or if you’ve got room to safely take on a mortgage. How High Is Too High? Most lenders follow maximum thresholds, especially for insured (high-ratio) mortgages. As of now, those limits are typically: GDS: Max 39% TDS: Max 44% Go above those numbers and your application could be declined, regardless of how confident you feel about your ability to manage the payments. Real-World Example Let’s say you’re earning $90,000 a year, or $7,500 a month. You find a home you love, and the monthly housing costs (mortgage payment, property tax, heat) total $1,700/month. GDS = $1,700 ÷ $7,500 = 22.7% You’re well under the 39% cap—so far, so good. Now factor in your other monthly obligations: Car loan: $300 Child support: $500 Credit card/line of credit payments: $700 Total other debt = $1,500/month Now add that to the $1,700 in housing costs: TDS = $3,200 ÷ $7,500 = 42.7% Uh oh. Even though your GDS looks great, your TDS is just over the 42% limit. That could put your mortgage approval at risk—even if you’re paying similar or higher rent now. What Can You Do? In cases like this, small adjustments can make a big difference: Consolidate or restructure your debts to lower monthly payments Reallocate part of your down payment to reduce high-interest debt Add a co-applicant to increase qualifying income Wait and build savings or credit strength before applying This is where working with an experienced mortgage professional pays off. We can look at your entire financial picture and help you make strategic moves to qualify confidently. Don’t Leave It to Chance Everyone’s situation is different, and debt service ratios aren’t something you want to guess at. The earlier you start the conversation, the more time you’ll have to improve your numbers and boost your chances of approval. If you're wondering how much home you can afford—or want help analyzing your own GDS and TDS—let’s connect. I’d be happy to walk through your numbers and help you build a solid mortgage strategy.
Thinking About Buying a Second Property? Here’s What to Know Buying a second property is an exciting milestone—but it’s also a big financial decision that deserves thoughtful planning. Whether you're dreaming of a vacation retreat, building a rental portfolio, or looking to support a family member with a place to live, there are plenty of reasons to consider a second home. But before you jump in, it's important to understand the strategy and steps involved. Start with “Why” The best place to begin? Clarify your motivation. Ask yourself: Why do I want to buy a second property? What role will it play in my life or finances? How does this fit into my long-term goals? Whether your focus is lifestyle, income, or legacy planning, knowing your “why” will help you make smarter decisions from the start. Talk to a Mortgage Expert Early Once you’ve nailed down your goals, the next step is to sit down with an independent mortgage professional. Why? Because buying a second property isn't quite the same as buying your first. Even if you’ve qualified before, financing a second home has unique considerations—especially when it comes to down payments, debt ratios, and how lenders assess risk. How Much Do You Need for a Down Payment? Here’s where the purpose of the property really matters: Owner-occupied or family use: You may qualify with as little as 5–10% down, depending on the property and lender. Income property: Expect to put down 20–35%, especially for short-term rentals or if it won’t be occupied by you or a family member. Your down payment amount can be one of the biggest hurdles—but with strategic planning, it’s often manageable. Ways to Fund the Down Payment If you don’t have the full amount in cash, you might be able to tap into your current home’s equity to help fund the purchase. Here are a few ways to do that: ✅ Refinance your existing mortgage to access additional funds ✅ Secure a second mortgage behind your current one ✅ Open a HELOC (Home Equity Line of Credit) ✅ Use a reverse mortgage (in certain age-qualified scenarios) ✅ Take out a new mortgage if your current home is mortgage-free These options depend on your income, credit, home value, and overall financial picture—another reason why having a pro in your corner matters. Second Property Strategy: It’s More Than Just Numbers This purchase should be part of a bigger financial plan—one that balances risk and reward. It’s about: Assessing your full financial health Maximizing your existing assets Minimizing your cost of borrowing Aligning your purchase with your long-term goals Ready to Take the Next Step? There’s no one-size-fits-all answer when it comes to buying a second property. That’s why it helps to talk things through with someone who understands both the big picture and the small details. If you’re ready to explore your options and build a plan to make that second property dream a reality, let’s connect. I’d love to help you take the next step with confidence.
Thinking of Buying a Home? Here’s Why Getting Pre-Approved Is Key If you’re ready to buy a home but aren’t sure where to begin, the answer is simple: start with a pre-approval. It’s one of the most important first steps in your home-buying journey—and here's why. Why a Pre-Approval is Crucial Imagine walking into a restaurant, hungry and excited to order, but unsure if your credit card will cover the bill. It’s the same situation with buying a home. You can browse listings online all day, but until you know how much you can afford, you’re just window shopping. Getting pre-approved for a mortgage is like finding out the price range you can comfortably shop within before you start looking at homes with a real estate agent. It sets you up for success and saves you from wasting time on properties that might be out of reach. What Exactly is a Pre-Approval? A pre-approval isn’t a guarantee. It’s not a promise that a lender will give you a mortgage no matter what happens with your finances. It’s more like a preview of your financial health, giving you a clear idea of how much you can borrow, based on the information you provide at the time. Think of it as a roadmap. After going through the pre-approval process, you’ll have a much clearer picture of what you can afford and what you need to do to make the final approval process smoother. What Happens During the Pre-Approval Process? When you apply for a pre-approval, lenders will look at a few key areas: Your income Your credit history Your assets and liabilities The property you’re interested in This comprehensive review will uncover any potential hurdles that could prevent you from securing financing later on. The earlier you identify these challenges, the better. Potential Issues a Pre-Approval Can Reveal Even if you feel confident that your finances are in good shape, a pre-approval might uncover issues you didn’t expect: Recent job changes or probation periods An income that’s heavily commission-based or reliant on extra shifts Errors or collections on your credit report Lack of a well-established credit history Insufficient funds saved for a down payment Existing debt reducing your qualification amount Any other financial blind spots you might not be aware of By addressing these issues early, you give yourself the best chance of securing the mortgage you need. A pre-approval makes sure there are no surprises along the way. Pre-Approval vs. Pre-Qualification: What’s the Difference? It’s important to understand that a pre-approval is more than just a quick online estimate. Unlike pre-qualification—which can sometimes be based on limited information and calculations—a pre-approval involves a thorough review of your finances. This includes looking at your credit report, providing detailed documents, and having a conversation with a mortgage professional about your options. Why Get Pre-Approved Now? The best time to secure a pre-approval is as soon as possible. The process is free and carries no risk—it just gives you a clear path forward. It’s never too early to start, and by doing so, you’ll be in a much stronger position when you're ready to make an offer on your dream home. Let’s Make Your Home Buying Journey Smooth A well-planned mortgage process can make all the difference in securing your home. If you’re ready to get pre-approved or just want to chat about your options, I’d love to help. Let’s make your home-buying experience a smooth and successful one!
