Earlier this week, the Bank of Canada sidestepped a cut to its key overnight rate, keeping it at 1.5%.
The bank chose to keep the rate steady despite the economy performing as expected because of uncertainty directly related to NAFTA negotiations.
Recent data on the global economy have been consistent with the Bank’s July Monetary Policy Report projections. The US economy is particularly robust, with strong consumer spending and business investment. Elevated trade tensions remain a key risk to the global outlook and are pulling some commodity prices lower.
The Canadian economy is proceeding as well as the bank had predicted earlier this year.
The Canadian economy is evolving closely in line with the Bank’s July projection for growth to average near potential. Following growth of 1.4 per cent in the first quarter, GDP rebounded by 2.9 per cent in the second quarter, as the Bank had forecast. GDP growth is expected to slow temporarily in the third quarter, mainly because of further fluctuations in energy production and exports.
Here are a few other findings from the bank’s report:
- Rotation of demand towards business investment and exports is proceeding.
- Business investment and exports have been growing solidly for several quarters.
- Housing market is stabilizing as households adjust to higher interest rates and policy changes.
- Continuing gains in employment and labour income are supporting consumption.
- Credit growth has moderated.
- Household debt-to-income ratio is beginning to edge down.
Brian DePratto, Senior Economist for TD Economics (and a former senior economist for Bank of Canada) predicts a rate increase at the bank’s next rate target announcement on 24 October 2018.
On balance, this is a fairly positive statement. The Bank again ended by noting that higher interest rates will be needed, but that a gradual approach will be taken – the same language introduced in May’s statement that presaged a July hike. . . . Barring a major shock, an October hike looks like a pretty safe bet, but after that the picture becomes murky.
The good news is that as a homeowner (or a potential homeowner), you can take advantage of these still relatively low rates to save money and buy the house of your dreams, or perhaps refinance an existing mortgage to lower a rate that is too high.
Contact us today to get these low rates working for you. Before a new rate increase is announced next month.