Bank of Canada keeps interest rate at 1.75%

The Bank of Canada announced this week that they’re once again keeping their overnight rate target at 1.75%.

The bank reports that the Canadian economy is operating close to potential and that inflation is about where they expected it would be at this point. In fact, economic growth was stronger than the bank had predicted.

That’s the good news.

The bad news is that the global economy has weakened further since the Bank issued their policy report this summer. Businesses are holding back on investment and trade because of trade conflicts and economic uncertainty. This, of course, hinders economic growth. And despite several countries implementing monetary and policy measures to support their economies, global growth may drop back to as little as 3% this year.

On area affected by the drop in global economic growth is commodity prices, which have fallen. This is potentially concerning for Canada, since out economy heavily depends on commodities. Even so, our exchange rate has remained relatively stable and our dollar has strengthened against other currencies.

Even though the Bank expects that growth in Canada will slow as 2019 draws to a close, government spending and lowering borrowing rates are supporting domestic demand and there is robust economic activity in the services sector. As well, the national housing market is finally starting to pick up.

GDP growth for Canada, according to Bank of Canada predictions, should end up at 1.5% for 2019, 1.7% for 2020, and 1.8% for 2021.

So, given the bittersweet economic position, the bank thinks holding off again on rate increases is the most appropriate action at the moment.

The benchmark rate is still lower than inflation. As such, anyone renewing a mortgage today will likely get a lower rate than in the past.

The next rate update will occur in January. And some analysts are suggesting that we might see the overnight rate drop next year.

“Rate cuts are most definitely on the table. After election-induced radio silence, the Bank of Canada came back to life with a notably cautious take on current events. When your statement includes a view that further contractions in investment and exports are likely, and that the economy will be ‘increasingly tested,’ it would seem to suggest that the possibility of monetary easing is top of mind.”

Brian DePratto, senior economist for TD Economics

“The market has increased its probability of a rate cut at the BoC’s next meeting in December to 30% and a rate cut is now fully priced by late next year.”

Nick Smyth, interest rate strategist for BNZ

If you want to know what options are available, are interested in renewing your mortgage to take advantage of the low rates, or want to find the best rate for you today, contact our office.

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