High hopes for a big, 50 basis point, rate cut by the Bank of Canada later this month have dimmed.  A strong jobs report for September has several analysts pulling back their forecasts.  They are now saying a, more traditional, 25 basis point cut is most likely.

Statistics Canada’s September employment report shows the economy added 42,000, net, new jobs, including 112,000 new full-time positions.  The unemployment rate ticked down one notch to 6.5% from 6.6% in August.

Those figures are being used to support the argument that the central bank’s current policy of quarter-point cuts is working and there is no need to change.

However, economists are also looking at other aspects of the report that, they say, temper the good news.  Those factors suggest September is an anomaly, given previous reports that show a job market that is not keeping pace with immigration.

They point out that the number of people who are working, or looking for work, dipped for the third time in four months; total hours worked declined and hourly wage growth slowed.  All of these indicate some weakness in the economy that could justify a half-percent cut in the Bank of Canada policy rate.

Given the mixed nature of the jobs report, most economists agree that the up-coming inflation report, which is due before the next rate setting, will likely be the key factor in any decision.

Published by First National Financial LP

Conditions seem ripe for a big, 50-point, interest rate cut by the Bank of Canada at its next setting later this month.  But the federal banking regulator has confirmed it will be providing, more direct, mortgage relief.

The Office of the Superintendent of Financial Institutions (OSFI) says it is going to end the stress test for uninsured mortgage switches.  The formal announcement is set for November 21.

The stress test, which was introduced at the beginning of 2018, requires borrowers with uninsured mortgages (i.e., a down payment of 20% or more) to qualify for their loan at the Bank of Canada’s five-year benchmark rate or their mortgage rate plus 2%, whichever is higher.

The upcoming change means borrowers who are making a straight swap of their existing mortgage from one lender to another – keeping the same loan amount and amortization schedule – will not have to requalify and pass the stress test.

Removing the stress test requirement answers a long-standing complaint that it discouraged – even prevented – borrowers from shopping for a new, cheaper lender at renewal time.  OSFI says it is making the change based on feedback from the mortgage industry and Canadians.

In March the federal Competition Bureau recommended dropping the stress test, saying the policy was “not evenly applied.”  OSFI all but admits the policy was wrong, saying the risks it had been intended to address “have not significantly materialized.”