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Bank of Canada Holds April Interest Rate: What This Means for the Canadian Mortgage Market

The Bank of Canada (BOC) announced on April 24, 2019 that it is holding its key interest rate for the third time this year. The overnight rate is remaining at 1.75%. The Bank Rate is correspondingly 2% and the deposit rate is. 1.5%.

From July of 2017 to October of 2018, the BOC increased interest rates from 0.5% to the current 1.75%, and they had indicated there were more hikes to come. But now their stance, and the economy, has changed.

Global and national economic growth has slowed down by more than what the BOC had forecasted for the first half of 2019. In particular, ongoing trade conflicts, last year’s oil price decline, and transportation constraints have affected the Canadian economy.

Housing and consumption have also been “weaker than anticipated,” according to the BOC.

However, that could be changing. In its April 24 release, the BOC stated that it expects growth to pick up, starting in the second quarter of 2019.

“Housing activity is expected to stabilize given continued population gains, the fading effects of past housing policy changes, and improved global financial conditions,” the BOC stated.

“Consumption will be underpinned by strong growth in employment income. 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.  Meanwhile, the contribution to growth from government spending has been revised down in light of Ontario’s new budget.”

BOC Governor Stephen Poloz echoed the sentiment that the second half of 2019 could be more prosperous than the first.

“Right now, we believe that this setting of interest rates will give us the outlook that … growth picks up in the second quarter, and picks up for real in the third quarter for the second half of the year,” Poloz said.

However, not all are as optimistic.

Mortgage Professionals Canada tweeted:

“The “past housing policy changes” mentioned by BoC [on April 24] – mortgage stress tests – are *not* in the past. They are current policy.

“With other factors also playing a role, BoC acknowledges Canada’s economy has slowed since B-20’s effects truly took hold this past year.”

Mortgage Professionals Canada Chief Economist Will Dunning replied to the tweet, saying that:

“BoC seems to imply that the negative effects will wane. To the contrary, the greatest impact, from reduced housing starts, has barely begun. Impacts will accumulate into 2021.”

What else does the interest rate slowdown mean for the Canadian mortgage market? It may depend on the type of mortgage being offered.

“Anyone with a variable-rate mortgage should be pleased with this announcement because it diminishes the timing and likelihood of any increase to the prime rate,” said James Laird, president of mortgage brokerage CanWise Financial, in an article from Which Mortgage.

“This announcement also provides some pressure relief to those considering entering the housing market, as they should expect fixed rates to remain stable through the spring and summer home-buying season.”

Canadian economists are speculating that the BOC may not increase interest rates again until sometime in 2020.

“…Governing Council judges that an accommodative policy interest rate continues to be warranted,” the BOC stated.

“We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive. In particular, we are monitoring developments in household spending, oil markets, and global trade policy to gauge the extent to which the factors weighing on growth and the inflation outlook are dissipating.”

The next BOC announcement is scheduled for May 29, 2019.

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