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 announced today that the overnight rate will remain unchanged at 1.5 percent. This will keep the prime rate of 3.7% at most of the chartered banks. Everyone is now looking ahead to October, anticipating a third interest rate rise in 2018. The Bank has been gradually raising its key interest rate over the past year from a low of 0.5 percent in July of last year.
Although consumer price inflation rose to three percent in July, which is above the Bank’s target of two percent, the Bank noted that the increase appeared temporary and driven largely by costly airfares and high gasoline prices. The Bank also mentioned that inflation should move back toward two percent in early 2019.
The Bank noted the strength of recent economic numbers, with GDP (Gross Domestic Product) rebounding to a booming 2.9 percent growth in the April to June period after a softer start of the year between January and March.
What does this mean for activity in the housing market? The Bank of Canada says activity is starting to stabilize as many households adjust to higher interest rates along with the changes in housing policies that kicked in on January 1st.
The continuing rise of employment and labour income are helping to support consumption. Canadian families are also adjusting to higher interest rates as past interest rate increases work their way through the economy, credit growth has moderated and the household debt-to-income ratio is beginning to edge down.
The next rate announcement will take place on October 24th, 2018.
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