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A Year in Review Part 2 – Interest Rates

This is the second post in our four-part year-in-review series for the Canadian mortgage industry. If you missed the first part of the series, you can catch up on Part 1 by clicking this link: https://www.purview.ca/a-year-in-review-part-1-teranet-market-insights/. Stay tuned for Parts 3 and 4 in the coming weeks.

What happened to the Bank of Canada interest rate in 2019? At first glance, the answer might be “nothing” as the overnight rate stayed the same — 1.75% — for the entirety of the year.

However, when we delve behind the lack of movement, we can see that there was significantly more change than it appears — particularly for the Canadian housing market.

Canadian Interest Rate 2019 – Month-By-Month Breakdown

The Bank of Canada (BOC) held eight interest rate announcements in 2019.

  1. January 9, 2019

During the first announcement of the year, the BOC held the interest rate at 1.75% and forecasted growth to slow by 3.4% in 2019. U.S. growth was also predicted to slow, and U.S.-Canada trade conflict was a concern.

The housing market was also a source of trepidation. The BOC cited housing market regulations, like municipal and provincial measures, new mortgage guidelines, and higher interest rates as contributing to weaker-than-expected consumption and housing investment.

During this announcement, the BOC maintained that interest rates would need to rise over time, but that timeline was uncertain.

Read our full summary of this annoucement: https://www.purview.ca/bank-of-canada-overnight-rate-january-2019/

  1. March 6, 2019

By the time of the second BOC announcement of 2019, the global economic slowdown had been more pronounced than predicted. This again left the BOC hesitant to change the interest rate.

In Canada, a decline in consumer spending in oil-producing provinces was of particular concern. The housing market also continued to be soft.

Read the full text: https://www.bankofcanada.ca/2019/03/fad-press-release-2019-03-06/

  1. April 24, 2019

By April, global and national economic growth was still slower than expected. Trade conflicts continued and housing and consumption were also weaker than anticipated.

However, the BOC took an optimistic tone, as they stated that housing activity was expected to stabilize in the second half of the year, “given continued population gains, the fading effects of past housing policy changes, and improved global financial conditions.”

Economists began to speculate that interest rates would not increase at all in 2019.

Read our full summary of this announcement: https://www.purview.ca/bank-of-canada-interest-rate-april-2019/

  1. May 29, 2019

The May interest rate hold was not a surprise to economists — but for the first time in 2019, the BOC pointed to positive factors on the horizon.

The oil sector was beginning to recover, job growth remained strong, and data supported a pickup in consumer spending and exports in the second quarter.

The housing sector, too, was pointing to a more stable national market, although the BOC noted weakness remained in some regions.

Nevertheless, trade conflicts and restrictions were still uncertain.

Read our full summary of this announcement: https://www.purview.ca/bank-of-canada-interest-rate-may-2019/

  1. July 10, 2019

While the Canadian interest rate stayed the same in July, the U.S. Federal Reserve lowered its interest rate from 2.25% to 2%. This was the first cut for the U.S. in a decade.

Global economic conditions were on the BOC’s mind during the July 10 announcement, as were ongoing trade tensions. Nationally, however, the housing market pointed to stabilization. The BOC stated: “A material decline in longer-term mortgage rates is supporting housing activity.”

The BOC also predicted that the Canadian economic growth would be “stronger than predicted” in the second half of 2019.

Read our full summary of this announcement: https://www.purview.ca/bank-of-canada-interest-rate-announcement-july-2019/

  1. September 4, 2019

After the U.S. Federal Reserve interest rate cut in July, several speculated the BOC would follow suit at its next announcement in September. However, that did not happen as the BOC decided to again maintain the status quo.

Despite the hold, global concern was on the rise as the U.S.-China trade conflict had escalated, world trade had contracted, and business investment had weakened.

However, the housing market remained a positive.

“Housing activity has regained strength more quickly than expected as resales and housing starts catch up to underlying demand, supported by lower mortgage rates,” the BOC stated. “This could add to already-high household debt levels, although mortgage underwriting rules should help to contain the buildup of vulnerabilities.”

Read our full summary of the announcement: https://www.purview.ca/bank-of-canada-interest-rate-september-2019/

  1. October 30, 2019

The October stay marked a full year without any changes to the BOC interest rate.

In October, the Canadian housing market continued to rise in strength. The BOC stated that activity was picking up in most markets.

However, this positive development also came with caution as consumer spending had been choppy. The BOC said they would continue to “monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.”

The global economy was not as strong, though. At this point, the U.S. Federal Reserve had lowered its interest rate three times, to 1.5%. Additionally, trade conflicts and global uncertainty was restraining business investment and global growth, the BOC said.

Read the GeoWarehouse summary of this announcement: https://www2.geowarehouse.ca/boc-interest-rate-announcement-october-2019/

  1. December 4, 2019

The final interest rate announcement of 2019 confirmed that the year had passed without any changes. However, there were several key differences between January 2019 and December.

Global economic uncertainty was much more pronounced than it had been at the beginning of the year.

Locally, the Canadian housing market went from “weaker than expected” in January to a “source of strength” in December.

Investment spending, particularly in transportation equipment and engineering projects, showed strong growth at the end of the year, and inflation remained at target.

Read our full summary of this announcement: https://www.purview.ca/bank-of-canada-interest-rate-december-2019/

Canadian Interest Rate Forecast 2020

Experts forecast that instead of an interest rate increase in 2020, Canada will see a rate cut.

While Canada’s interest rate stayed the same in 2019, more than 40 central banks around the world cut theirs.

“We expect sub–trend growth will continue through the early stages of 2020, testing the BoC’s patience,” stated RBC Economics in a research note. “We look for a rate cut in Q2, but acknowledge that persistent strength in housing and earlier fiscal stimulus could keep the bank on the sidelines.”

In the first announcement of 2020 so far, on January 22, the BOC held the rate again, but that could be changing. Some predict we will see a rate cut as early as April 2020. 

Where do you think the Bank of Canada interest rate will go in 2020? The next announcement is scheduled for March 4. Share your predictions with us on social media. Purview is on FacebookTwitter, and LinkedIn.

Purview’s in-depth property solutions can help mitigate risk whether the Canadian interest rate increases, decreases, or stays the same. Tools such as Equity Estimates and Parcel Registers* help validate the property value and client’s financial stability. Learn how to access this technology by calling 1-855-787-8439 or visiting www.purview.ca.

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