Mortgage Blog

Bank of Canada Rate Announcement - March 18, 2018

April 18, 2018 | Posted by: Crescent Mortgage Corp.

The Bank of Canada kept its key overnight target rate unchanged at 1.25% today as it recognized weakness seen in housing and investment in exports

Despite the fact many of the key ingredients for are now in place for higher rates, the BoC stated it remains “cautious with respect to future policy adjustments.”

As the slack in Canada’s economy disappears inflation is edging higher and is now approaching the BoC’s 2.00% target.

Having said that, the economy’s overall capacity to grow is also increasing as the BoC upped its estimate of potential output growth for 2018-2020 which means the economy’s growth could accelerate without a corresponding increase in inflation.

For 2018, the BoC is expecting the economy to grow 2.00%, which is down 20 bps from earlier projections. Growth is predicted to be stronger than expected in 2019 and 2020, at 2.10% and 1.80% respectively as a result of federal and provincial fiscal measures.

Right now however, the BoC is more focused on the factors holding back the economy, as corporate tax cuts south of the border and trade uncertainties have negatively impacted exports and investment.  The BoC went on to identify protectionist global trade policies and the sensitivity of heavily leveraged homeowners to higher interest rates as the greatest downside risks to the economy’s outlook.

The BoC has raised its key rate three times since last June, and economists and the market are expecting at least one more hike in 2018.  Both CIBC and BMO are predicting a hike in July, but also stress that the BoC will probably not be in any rush to move again after that increase.

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