Mortgage Blog

Bank of Canada Rate Announcement - May 30, 2018

May 30, 2018 | Posted by: Crescent Mortgage Corp.

The BoC kept its key interest rate unchanged again today at 1.25%, pointing to trade uncertainty, a housing slowdown and increasing “stress” in emerging markets.  However, it did seem to set the table for a potential July rate hike in its warning that it will need to act soon to maintain its 2.00% inflationary target.

“Overall, developments since April further reinforce the governing council’s view that higher interest rates will be warranted to keep inflation near target,” the statement said. “Governing council will take a gradual approach to policy adjustments, guided by incoming data.”

The Canadian dollar increased in value by more than 1% after the announcement.

The BoC identified numerous indicators of economic strength, including stronger than anticipated U.S. growth, higher oil prices, improving export numbers and labour income growth.

The Canadian economy has been growing steadily in recent months and some inflationary benchmarks now sit at or above the bank’s 2.00% target.

“Inflation in Canada has been close to the 2 per cent target and will likely be a bit higher in the near term than forecast in April, largely because of recent increases in gasoline prices,” according to the statement. “Core measures of inflation remain near 2 per cent, consistent with an economy operating close to potential.”

At this point, many economists expect the BoC to raise its key target rate 25 bps on July 11, when it also due to release its next quarterly economic forecast.   Furthermore, at least one more hike is anticipated before the end of the year.

The BoC has raised its target rate by 25 bps three times since last June, however is has been on hold since January due in large part to the uncertainty surrounding NAFTA.

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