The Bank of Canada (BoC) has ushered in another month of stability for borrowers, opting to keep its Overnight Lending Rate – which sets the variable pricing trends for the nation’s consumer lenders – at 1.75%, where it has remained since October of last year. Softer economic conditions, both on a domestic and global scale, were cited by the Bank in their rationale for a more cautious approach to monetary policy.
It’s a stark contrast to the hiking mandate the central bank followed throughout 2017 and much of 2018, when it increased the rate five times in response to booming inflation growth and jobs data. However, as the housing market has cooled and the oil and energy sectors struggle, analysts now expect rates to remain on hold – or even drop – between now and 2020.
In its announcement, the BoC stated, “Given all of these developments, Governing Council judges that an accommodative policy interest rate continues to be warranted. We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive. In particular, we are monitoring developments in household spending, oil markets, and global trade policy to gauge the extent to which the factors weighing on growth and the inflation outlook are dissipating.”
In addition to growth challenges close to home, the BoC also took persisting global trade conflicts into account, as tensions flare among the U.S., China, and Canada, and uncertainty continues in the UK and EU as a result of the impending Brexit. It noted that central banks around the world have been taking a holding or cutting approach to interest rates, which will spell a round of cheaper borrowing for investors, borrowers, and home buyers. This will help support the economy until global growth picks up to an annual pace of 3.25% later this year, according to the BoC’s latest Monetary Policy Report.
On the home front, it expects GDP growth to grow 1.2% in 2019, and 2% throughout the next two years, as inflation sticks close to its 2% growth target. As well, it anticipates the housing market will stabilize in the medium term, as the impacts from the national mortgage stress test are normalized throughout the market.
Investors and analysts are betting that this lower interest rate environment will stick around – in a poll conducted by Reuters prior to the BoC’s April announcement, all 40 indicated rates would be held, with 60% believing a rate hike won’t be on the table until at least 2020.
BoC Governor Stephen Poloz has also stated that any decision the BoC makes will depend on economic data. In a press conference while meeting with the International Monetary Fund in Washington he said, “What matters is what forces are acting in the economy… That number is going to change every time something hits the economy, whether it’s a positive thing or a negative thing.”
For those with variable lending products, such as mortgages, the BoC’s locked-in stance signals a period of stability, as interest rates are widely expected to remain untouched, or even cut, over the remainder of 2019.
Penelope Graham is the Managing Editor of Zoocasa.com, a real estate website that combines online search tools and a full-service brokerage to let Canadians purchase or sell their homes faster, easier and more successfully across the nation, from Toronto and Vancouver, to Calgary real estate and Edmonton real estate. Home buyers and sellers can browse listings on the site, or with Zoocasa’s free iOs app.