Bank of Canada Rate Annoucement - September 5, 2018
September 5, 2018 | Posted by: Crescent Mortgage Corp.
The BoC decided to take a break from its recent pattern of increasing rates and will instead wait to see the fallout from NAFTA discussions. The target for the overnight rate remains unchanged at 1.50% even in the face of surprisingly positive economic data.
The BOC is 'monitoring closely the course of NAFTA negotiations and other trade policy developments, and the impact on the inflation outlook,” as stated in today's release.
At the same time the BoC acknowledged that the economy is ready for more rate hikes, given July's 3.00% inflation number and higher than expected growth (2.90% annually) in the second quarter of this year. In addition, household debt levels are dropping, business investment is on the rise and the housing market is showing signs of stabilization.
At this point, most economists are forecasting the BoC will resume hiking rates with its next announcement scheduled for October 24. TD Economics noted “Barring a major shock, an October rate hike looks like a pretty safe bet, but after that the picture becomes murky,”
A NAFTA deal in the near future certainly could improve the economy's growth prospects and force the BoC's hand in increasing the pace of future rate hikes. There have been four rate increases since the middle of last year. The BoC estimates that its neutral policy (neither increases nor decreases economic activity) interest rate is approximately 3.00%, 150 bps below its current level.