Eight times per year, the Bank of Canada meets to determine what the base lending rate should be. Any change to this industry benchmark indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This information is also a good indicator of the current status of the Canadian economy.
The Bank of Canada has opted to maintain their benchmark interest rate at 1.75 percent today - welcome news for variable rate mortgage holders who are unlikely to see a further increase in their interest rate in the immediate future.
Within the Canadian mortgage industry, Canada’s central bank reports stabilization in household credit and regional housing markets. The bank continues to assess the impact of the recent changes to mortgage legislation, as well as higher interest rates and housing policy changes.
Perhaps the most notable development within the western provinces is the sharp decrease in oil prices since October. Higher inventories and transportation constraints have resulted in decreased production and, in turn, a weaker energy sector across the country.
Projections for the fourth quarter suggest a slowdown in economic activity due to increased trade uncertainty and a drop in business investment. However, inflation continues to evolve largely as anticipated, with core measures nearing 2 percent. CPI inflation hit 2.4 percent in October of this year, although the bank expects lower gasoline prices to bring this closer to the 2 percent target in the near future. Also noteworthy is the loonie falling below 75 US cents for the first time in over 18 months.
According to the central bank, "Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target. The appropriate pace of rate increases will depend on a number of factors." The bank cited several determinants that they will consider, including:
- How interest rate increases will impact consumption and housing
- The evolution of global trade policy
- The impact of the recent drop in oil prices
- How business investment will continue to unfold; and
- Economic capacity assessments
The first rate announcement and Monetary Policy Report of the new year will be released on January 9, 2019.
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