For the fourth time in a row, the Bank of Canada has maintained its target for the overnight rate at 1.75%. This announcement was released on April 24, 2019.
For the last three interest rate announcements, general sentiment among financial experts has been that the Bank of Canada was unlikely to raise rates today, and that prediction was proven correct.
What’s more, the language that the governor of the Bank of Canada, Stephen Poloz, used in his release suggests that further rate hikes may be on hold for the rest of the year.
The reason for this rate stall? Poor economic outlook. While the economy looked to be in good shape at the end of last year (right around the time of the last rate hike), since then the forecast has done a 180. The global economy, not just Canada’s, has faltered a bit.
We can see the effect of this in bond yields, which are the lowest since 2017. We also see this affect fixed mortgage rates despite the Bank of Canada not taking any action since 2018. 5-year fixed rates have dropped quickly, with the current best 5-year fixed rate at an incredibly low 2.89% - below even some variable rate mortgages!
This drop happened without any change in the interest rate, suggesting that banks are predicting stagnant or even falling interest rates in the short term. This benefits those looking to get a mortgage now, since rates are the lowest they’ve been in a long time.
“Consumption will be underpinned by strong growth in employment income,” the Bank of Canada said in its announcement. “Outside of the oil and gas sector, investment will be supported by high rates of capacity utilization and exports will expand with strengthening global demand.”
This language suggests that the Bank is holding off on rate hikes until investment picks up.
Holding off, or even lowering rates, is great for mortgage borrowers, so long as they are able to keep their income steady in a period of slow economic growth. Even variable rates can benefit from this, despite no change yet. According to the CBC, “investors in financial instruments known as overnight index swaps are pricing in zero chance of a hike this year, but about a one-in-five chance of a cut by July, and up to a 44 per cent chance by September.”
That’s a good sign for variable mortgage holders worried about future increases.
The next Bank of Canada interest rate announcement will be held on May 29, 2019.