Today, the Bank of Canada elected to increase its target for the overnight rate to 1.25%, up from 1%. Why? The economy is near full capacity, we are near the target inflation rate, and recent financial data suggests it’s time to slow down.
With estimates by the Bank that the GDP growth in 2017 reached 3.0%, the Bank feels this will drop in 2018 and thus the overnight rate may remain stable for a while and perhaps even fall if predictions come true later in the year.
The current state of the NAFTA negotiations is also causing some concerns relative to future economic predictions. A down tick in trade could vastly impact business investment in Canada. Even with this uncertainty there is positive news. The lower business capital gains rate in the US has freed up cash for more investment by US companies and Canada stands to gain from export opportunities.
With all the uncertainty, the Bank of Canada recognizes however that higher interest rates may be warranted over time if warranted. The Bank however does not want to be the cause of any stagnation over time or cause the inflation rate to falter.
The Bank states it will “remain cautious in considering future policy adjustments” carefully analyzing the data to evaluate “the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.”
The Banks of Canada’s next interest rate statement is set for March 7th. You can read the full Bank of Canada rate hike announcement here.
I welcome any questions about how these recent interest rate changes can possibly impact your home buying or mortgage needs, so please don’t hesitate to give me a phone call or drop me an email. I’m here to help you.
At Your Service,
Michael J Preston