Bank of Canada raises its rate to 1.75%

As expected, the Bank of Canada raised interest rates this week. Their overnight rate target increased from 1.50% to 1.75%.

Global economy

The bank considers the global economy to be strong:

The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon, as forecast in the Bank’s July Monetary Policy Report (MPR). The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment.

That being said, it does have some reservations, hence the slight increase.

Trade conflict, particularly between the United States and China, is weighing on global growth and commodity prices. Financial market volatility has resurfaced and some emerging markets are under stress

Canadian economy

It’s the same situation domestically, with relatively positive economic progress in Canada

The Canadian economy continues to operate close to its potential and the composition of growth is more balanced. Despite some quarterly fluctuations, growth is expected to average about 2 per cent over the second half of 2018. Real GDP is projected to grow by 2.1 per cent this year and next before slowing to 1.9 per cent in 2020. The projections for business investment and exports have been revised up, reflecting the USMCA and the recently-approved liquid natural gas project in British Columbia.

but with some reservations

Still, investment and exports will be dampened by the recent decline in commodity prices, as well as ongoing competitiveness challenges and limited transportation capacity.

Housing market

Specific to the housing market, the Bank of Canada sees signs of the volatility stabilization:

Housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.

The bank’s rate increase means that the prime lending rate for consumers is now at 3.95%. It’s still under 4%, but it’s slowly rising. This will particularly affect homeowners holding mortgages with a variable rate. But since the bank’s target affects other lending (lines of credit, credit cards, vehicle financing, etc), those with fixed mortgage rates could be affected in other ways.

If you want to know what options are available or want to find the best rate for you today, contact our office. The next rate announcement will be 5 December 2018.

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