Once again, the Bank of Canada did not raise it’s overnight rate, which stands at 1.75%. This comes as no surprise as it was expected by nearly everyone.
Global trade continues to be the proverbial axe hanging over the country’s head. Economic growth has been slower than foreseen. If the Bank had the impression that the domestic economy could handle it, they would have continued to bump up the overnight rate as planned. The Bank implemented 5 hikes since July 2017, but now states that they will “wait and see” before they continue the upward trend. Derek Holt, vice president of capital markets at Scotiabank, said “the market went too far in terms of pricing out rate hikes further on.”
The global trade outlook seriously impacts Canada, a country that relies heavily on commodity exports. There was anticipation a US-China trade agreement would move things along, but conflict between the two countries continues to “[weigh] on global demand and commodity prices” while we wait to see a deal signed and delivered.
Export volumes fell in 8 out of 11 sectors, according to Statistics Canada’s latest trade data. It is expected that US growth this year is expected to slow “to a more sustainable pace.” The Bank also indicated that global economic growth is “forecast to slow to 3.4% in 2019 from 3.7% in 2018.”
In particular, the Central Bank is keeping a sharp eye on two important sectors in particular: housing and energy.
The Bank announced that, “Consumption spending and housing investment have been weaker than expected… [and] household spending will be dampened further by slow growth in oil-producing provinces.” Housing prices are not expected to bounce back by very much this year and financial markets are still up in the air.
In the Bank’s own words, “investment in Canada’s oil sector is projected to weaken further… The oil crisis took a major dive at the end of last year when Canada’s trade deficit more than doubled from $900 million in October to $2.1 billion in November.” The announcement offered no hope for the future. “While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada’s oil sector is projected to weaken further.” The economy is already hurting and is expected to get worse.
Canada is in trouble!
However, the Canadian dollar has already reached its strongest intraday level since December and is expected to rally in 2019.
Even though the Bank has assured us that they will continue to hike interest rates in the future, most observers doubt how soon that will be. The Bank will make 7 more interest rate announcements this year in March, April, May, July, September, October, and December.
To find out how this forecast impacts your mortgage please contact us today.