What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BoC) makes an announcement about their base lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financing lenders. For more information, our recent blog post breaks down four of the most frequently asked questions regarding the BoC.
Were there any Changes to the Interest Rate?
Canada’s central bank announced no change to their benchmark interest rate this morning. Today marks the sixth time the rate has held steady since the increase in October of 2018, which came as no surprise to Canadian economists.
What Information did the Bank Share about the Canadian Economy?
As anticipated, the Canadian economy is recovering from the temporary weakness witnessed in late 2018 and early 2019. Growth has been stronger than expected in the second quarter of this year, albeit due to temporary factors. A strong labour market has increased consumption and the housing market is showing stabilization on a national level. The bank also noted a decline in longer-term mortgage rates which has had a positive impact on housing activity.
Canada’s GDP is expected to average 1.3 percent this year, and around 2 percent for the next two years. Inflation continues to sit around the 2 percent target, however, CPI inflation is projected to dip this year due to some temporary factors including “the dynamics of gasoline prices.” The bank anticipates inflation to return to 2 percent by mid-2020.
Globally, the bank had projected some negative effects of ongoing trade tensions on economic outlook in earlier Monetary Policy Reports. That outlook was further downgraded today largely due to the trade conflicts between the US and China. In particular, the bank has noted a decline in business investment and manufacturing activity, which has, in turn, driven down commodity prices. Escalation of these trade conflicts continues to be the most significant risk to both global and Canadian economic outlooks.
Despite the downgraded outlook, Canada’s central bank “expects global GDP to grow by 3 percent in 2019 and to strengthen to around 3 ¼ percent in 2020 and 2021, with the US slowing to a pace near its potential.”
Will there be any Interest Rate Changes in the Near Future?
The central bank always aims to set its rate within neutral range, which is currently between 2.25 and 3.25 percent. It remains widely anticipated that the rate will continue to hold steady for at least the remainder of 2019. Governing Council continues to pay particular attention to the energy sector and the effect of trade conflict on Canada’s growth and inflation. The bank’s next rate announcement is set to be released on September 4, 2019.
How Can I Learn More?
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