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 ongoing uncertainty related to global trade conflicts is undermining business sentiment and contributing to a slowdown in growth across many countries. That circumstance has led to central banks, including the Bank of Canada, slowing the pace of interest rate normalization. The Bank expects global uncertainty, along with weaker-than-anticipated housing and consumption spending, to be a drag on economic growth through the first half of 2019. Overall, the Bank judges that accommodative monetary policy (meaning low interest rates) continue to be warranted.
The Canadian economy is showing some signs of improving in the first quarter after registering less than 0.5 per cent growth in the final quarter of 2018. However, the drag from lower Alberta oil production and the ongoing negative impact of the mortgage stress test means that Canadian economic growth will likely be modest, in a range of 1-1.5 per cent this year. That places any further tightening this year by the Bank of Canada in doubt, though a recent uptick in inflation has quieted talk of a rate cut. As we forecast a month ago, 5-year fixed rates have fallen further with most Banks now offering borrowers a 3.24 per cent rate, a level we expect to prevail for much of 2019.
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