The Bank of Canada held its latest interest rate announcement meeting on March 7th, 2018. As analysts widely expected, they ultimately decided to keep the key interest rate unchanged at 1.25%. The Bank of Canada has increased rates three times since June of 2017, pulling rates out of their stimulus levels, which date back to the 2015 oil crisis. Nevertheless, rates remain historically low at the current levels.
The Bank of Canada Remains Conservative in the Wake of Uncertainty
The Bank of Canada cited a few issues regarding the current economy. NAFTA is still being negotiated, and there are potential trade wars emerging with the United States regarding steel and aluminum. Additionally, the Bank of Canada still wants to monitor the effects of the other three interest rate increases they made in the second half of 2017.
Analyzing economic data, the Canadian economy was also a little slower than anticipated in the second half of 2017. They want to see how the previous interest rate increases and the new mortgage rules will affect debt levels. The Bank of Canada has to be conservative and conscientious regarding these changes, as they don’t want to artificially depress the economy.
Staving Off Inflation in a Strong Ecnomy
The Bank of Canada increases rates in order to stave off inflation. With economic data being a little softer than expected (as well as the previously mentioned items), they don’t feel as much urgency to increase rates as they did in the past. Inflation is not creeping up too high too quickly, though the economy is still growing stronger. Consequently, it’s better to keep the rates at current levels in order to keep stimulating the economy.
As far as the analysts go, many are now saying that the Bank of Canada may take a more conservative approach throughout the year, depending on how things play out over the next few months. Many analysts thought the banks would be increasing rates about three times this year. Some say we won’t see any further increases. Some say we will see one instead of two. We’ll see what happens in the next few months.
The Effect of Low Interest Rates on the Real Estate Market
Lower interest rates are good news for the real estate market. With the new mortgage rules recently coming into effect, it’s prudent for the Bank of Canada to keep interest rates at the current levels until the market absorbs these changes.. Rates remain at historical lows but they aren’t going to be getting any more affordable any time soon, so take advantage of them now.
If you’re a first-time buyer, now is the time to make the investment. Borrow that affordable money, because rates are set to rise slowly over the next couple of years and return to normal levels. Which is a good thing. Normal levels are what we want to see, as it comes with a strong economy. It doesn’t mean anything negative, and it certainly doesn’t mean that normal rate levels are going to lead to price declines. It just means that we’re going back to normal rate levels because the economy is strong.
Just a quick update on interest rates. As soon as the bank meets again, we’ll update you; but until then, that’s everything.