Interest Rate Remains Unchanged

INTEREST RATE REMAINS UNCHANGED

As many had predicted, the Bank of Canada has erred on the side of caution this morning and paused their plan of a gradual and consistent rate hike pattern.

Several factors led to this slight change of course, primarily slumping oil prices and lagging retail spending. Although there was no talk of a rate decrease, their stance has shifted to more of a “wait and see” approach as the Canadian economy slows and Canadians begin to feel the pinch from past interest rate hikes. The  Bank of Canada still maintains that its target benchmark interest rate is between 2.5 per cent and 3.5 per cent (currently 1.75 per cent). The BoC believes the hikes will need to be implemented at a later time when the Canadian economy is showing less weakness.


Source: business.financialpost.com

The news since the last rate hike in October has mostly been negative. Policy makers observed that indicators suggest Canada’s economy had “less momentum going into the fourth quarter” they referred to the reasons below in their decision.

  • President Trump’s trade wars weighing heavily on global demand
  • Steep decline in Canadian oil
  • Recent announcement that Canada’s GDP is lower than estimates had shown
  • Slowdown in retail spending

The latest assessment of the state of play by Canada’s central bankers wasn’t all negative. They expressed confidence that non-energy investment would strengthen in the months ahead. The signing of the new North American trade agreement adds more certainty to a weakened economy, and the Trudeau government’s promise to cut taxes on investment and reduce regulation should make Canada more competitive, the central bank said.

How does this affect real estate?

Although not the only indicator, interest rates have played a large role in the Real Estate Market’s slowdown. That being said, this pause in rate hikes is a sigh of relief to many property owners who have seen their property values decline slightly in recent months. Another rate hike would surely have increased downward pressure on pricing and dampened the 2019 spring market. The Bank of Canada’s next Monetary Policy Report is due in January, where Stephen Poloz and his governing council will reassess the economy and either maintain rates, or continue down the path of gradual rate hikes.


Source: business.financialpost.com

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