Bank of Canada Interest Rate Announcement
The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that while it had expected weak energy investment and exports due to low Canadian oil prices, lower consumer spending and housing market activity in spite of a strong labour market led to a more broad based slowdown than it had forecast. On inflation, the Bank expects CPI inflation to run below its 2 per cent target in 2019 due to the drag from lower energy prices and other temporary factors.
The Canadian economy sputtered to the finish line in 2018, growing just 0.4 per cent in the final quarter of the year and actually contracting in the final month. Given that weak hand-off to the first quarter, the drag from lower Alberta oil production and the ongoing negative impact of the mortgage stress test, slow growth will continue into the first half of 2019. That places any further tightening this year by the Bank of Canada in doubt, and raises the possibility of a rate cut should the outlook deteriorate further. We expect to see further downward movement in mortgage rates, which will help to soften the hit to affordability from the stress test and move some buyers off of the sidelines this spring.
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