Bank of Canada Holds Rate at 1.75% in April Announcement

The Bank of Canada (BoC) has stuck to a slow-but-steady stance in its April announcement, holding its trend-setting Overnight Lending Rate at 1.75% as a result of uncertain economic factors, both at home and on a global scale.

That the BoC is keeping status quo on its interest rate, which is used by consumer banks to price their variable-rate lending products, is a turnaround from the its mandate over the last two years, when stronger economic growth had spurred expectations for multiple rate hikes in 2019.

However, any upward movement now appears off the table for the foreseeable future, as global trade conflicts persist, domestic oil and housing markets slow, and GDP and inflation growth remain subdued. 

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.”

Slower Global Outlook Reduces Likelihood of Rate Hike

Overall, global economic growth has performed below what was forecasted in the BOC’s January Monetary Policy Report, mainly due to ongoing trade issues between the U.S., China, and Canada. The BoC notes that a “slower pace of monetary policy normalization” – aka lower interest rates – has become the trend for central banks around the world, ushering back in a period of cheaper borrowing. 

That in turn will help stimulate purchasing power and investor sentiment, as well as support oil and commodity prices, which have struggled over the first half of the year. The most recent MPR forecasts global growth to pick back up by 3.25% over the course of 2019.

Housing and Oil Markets Behind Slower Canadian Growth

The Canadian economy in particular has had a slower six months, mainly due to the troubled oil and energy sectors, softer prices for homes for sale, and lower consumption. The amount contributed to the economy by governments has also been revised down, due mainly to the many cuts introduced by the recent Ontario provincial budget.

However, the BOC expects this will turn around this quarter as the housing market “stabilizes” and the impacts of policies such as the federal mortgage stress test are further absorbed. Continued population growth, as well as the aforementioned lower interest rates, will also help drive real estate demand. Overall, Canada’s GDP is expected to grow 1.2% this year and 2% through 2021, with inflation to stick close to its 2% growth target over the next two years. As a result, the Bank will likely leave its rate untouched for the medium term as it keeps an eye on how the housing and oil markets perform.

What Does This Mean for Your Mortgage Rate?

Given the current slower state of the economy, analysts widely expect interest rates to stay where they are – or even dip lower – for the remainder of the year; a poll conducted by Reuters of 40 economists unanimously expected today’s rate hold, with 60% saying there won’t be any rate hikes until at least 2020. 

BoC Governor Stephen Poloz has also strongly 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 stated, “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.

About Penelope Graham

Penelope Graham is the Managing Editor at Zoocasa. A born-and-bred Torontonian and quintessential millennial, she has over a decade of experience covering real estate, lifestyle and personal finance topics. When not keeping an eye on Toronto's hot housing market, she can be found brunching in one of the city's many vibrant neighbourhoods.