BOC trying to keep Interest rates at 1.25%
As you must have heard or read, Bank of Canada (BOC) announced on April 18th, they are in no rush to hike up rates this year.
The rate of 1.25% will remain the same for now. BOC has pointed out that there are many concerns in Canada, one being the global economy. That alone justifies why rates will remain at 1.25%. In the last 3 months, we have noticed a slow housing market in Canada as well as trade disputes between the US and Canada. The Bank has said they will continue to monitor the economy’s sensitivity towards interest rates. It was said in a bank statement, “Governing Council will remain cautious with respect to future policy adjustments guided by incoming data”.
When mortgage rules took effect on Jan 1st, it’s a fact that those rules cooled down the housing market tremendously. When Bank of Canada made their announcement, they also mentioned an increase in housing activity in the fourth quarter ahead of the new rules. According to The Real Estate Board, housing sales have dropped 23% just in March alone.
We will have to wait for some time to see whether this is temporary or the new rules will last a bit longer. Banks are expecting to see prices bounce back in the second quarter.
The prices had a significant increase according to Canada Statistics. Inflation rose 2.2% for the month of March. Even core inflation, not including gas rose over 2%. This will be the first time this has happened since February 2012. BOC also stated that this increase is short-lived and stated the reason for the gains was due to the recovery in gas prices and wage hikes in Ontario.
A careful direction
While this information is helpful, there is no guarantee that BOC will stop rising rates later down the road.
The bank does expect our economy to continue to grow this year slowly at 2%, where as previously it was increased by 2.2%. However, next year’s growth is expected to be stronger than previously anticipated.
At the present time, there are analysts who are foreseeing two more rate hikes in 2018. If this is true, it will bring the benchmark rate to 1.75% by the end of this year.