Bank of Canada Announcement - January 9, 2019

Posted on 09 January, 2019

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 that their benchmark interest rate will remain unchanged this morning for the second time since the 0.25 point increase in October of 2018. Along with the rate announcement came a downgraded outlook for the Canadian economy this year, with the growth forecast dropping from 3.7 percent to 3.4 percent.

The central bank cited several causes for the weaker outlook, however they did make note that “this revised forecast reflects a temporary slowing in the fourth quarter of 2018 and the first quarter of 2019.” Economic growth predictions actually increased for 2020, up to 2.1 percent from the previously forecasted 1.9 percent.

Of particular concern within today’s Monetary Policy Report (MPR) were weaker global demand, lower oil prices, as well as less consumer spending and housing investment. A more detailed overview of the factors considered in the revised outlook is available in the table below.

 

Outlook Factor
Description
Global Demand US-China trade conflict weighing on global demand.
Decreased Oil Prices

Sustained increases in US oil supply and concerns about global demand have driven down prices.


Transportation constraints & rising production have been increasing oil inventories in Western Canada. Mandatory production cuts have recently been implemented in Alberta, however further weakening of the oil sector is expected.

Consumer Spending Weaker consumer spending is projected as growth remains slow in the oil-producing provinces.
Housing Investment  Housing markets still adjusting to tighter mortgage rules, higher interest rates and adjustments in both municipal and provincial measures.

 

For those holding a variable rate mortgage, you can expect to see no immediate increase in your mortgage payments as the cost of borrowing for Canadian lenders has held steady. The bank did, however, make note that their key interest rate is still predicted to rise in the future. The immediacy is dependent upon how the bank’s economic outlook evolves over time, with particular attention being paid to the factors outlined in the above graph.

The bank also noted today that the Canadian economy has been “performing well overall,” with strong employment growth and the lowest unemployment rate in 40 years as well as solid projections for exports and non-energy investment.

The next rate announcement will take place on March 6, 2019. For up-to-date information on interest rates and other mortgage news, be sure to keep an eye on our blog and follow us on Facebook, Instagram and Twitter. If you have questions about your mortgage or what this information means for you, please feel free to contact our office and speak to one of our Mortgage Brokers today!

 


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