The Bank of Canada’s reduction of the overnight rate to 0.25% on Tuesday will help to spur an economic recovery late this year, according to Sal Guatieri, senior economist at BMO.

In a conference call on Tuesday, Guatieri said he expects interest rates to remain at this extremely low level for months to come.

“The news, of course, is good for the economy,” he said. “The low interest rates should spur an economic recovery starting late this year, and perhaps a modest recovery through next year.”

BMO economists are pleased that the Bank of Canada has become “realistic” in its growth outlook, and that the bank is taking the appropriate measures to assist the economy, Guatieri said.

John Turner, director of mortgages at BMO, said the lower interest rates and mortgage rates will be very beneficial for Canada’s housing market. The reduced rates will bring more consumers into the market, many of whom may not have qualified previously, he said.

“This is a good thing for the home-buying market,” said Turner, “specifically on the first-time home-buyers side.”

In terms of mortgages for homebuyers in the current market, variable rate mortgages are a very attractive option, according to Turner. But he added that such borrowers must be able to stomach the uncertainty of the future.

On Thursday, the Bank of Canada is set to release its Monetary Policy Report. Guatieri expects the bank to announce new efforts to make credit more freely available to consumers and businesses.

“Given that the Bank of Canada is targeting 2% inflation, it needs to get pretty drastic on the credit easing front to achieve that target,” he said.

In particular, he calls for an expansion of current credit facilities and an extension of the terms on loans to banks and financial intermediaries. The bank is also likely to begin buying up asset-backed securities and mortgage-backed securities, Guatieri said.

IE