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Bank of Canada Interest Rate Announcement – April 18, 2018

Bank of Canada Interest Rates Affecting Vancouver Real Estate

The Bank of Canada decided to leave the target for the overnight policy rate unchanged at 1.25 per cent this morning. In the statement accompanying the decision, the Bank noted that inflation is forecast to be slightly higher in 2018 than originally expected but will return to the Bank’s 2 per cent target once the impact of higher gas prices and minimum wage increases dissipate. While the mortgage stress test has been a contributor to weaker growth in the first quarter of 2018, the Bank expects the economy to be operating at above potential over the next three years, growing at an average rate of about 2 per cent.

Although the Bank held steady today, with inflation rising to the Bank’s two per cent target and many Canadian firms operating at or near capacity, interest rates are very likely headed higher this year. Headwinds from the trade sector have moderated, energy prices are higher and growth for the first quarter appears to be firming after a slow start. Given those trends, the Bank is likely to adjust its policy rate higher in coming months. That will translate to higher mortgage rates which, combined with the erosion of purchasing power from the mortgage stress test, will temper housing demand in 2018.

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Bank of Canada Interest Rate Announcement

Bank of Canada Interest Rates Affecting Vancouver Real Estate

The Bank of Canada opted to maintain its target for the overnight interest rate this morning at 1.25 per cent.  In the statement accompanying the decision, the Bank noted that although growth in the Canadian economy slowed more than expected in the fourth quarter of 2017, the economy is expected to operate at capacity going forward. The bank cited recent trade policy developments, mainly the threat of a trade war with the United States, as a significant risk to its outlook for growth and inflation.

The Canadian economy is at or very close to full-employment, meaning there is little room for Canadian firms to expand output without putting undue pressure on inflation. There are signs core inflation is already firming up.

Two of the Bank’s three core inflation measures are closing in on the Bank’s 2 per cent target and all three measures have increased significantly in the past six months. Absent any unforeseen challenges to the Canadian economy, monetary policy will be biased in the direction of higher interest rates.

However, the Bank will likely hold off raising its overnight rate while it assesses the impact of tighter monetary policy over the past year, the impact of newly implemented B-20 guidelines on mortgage qualification rules, and heightened risk to Canadian exports from US trade policy.

Source – BCREA

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Bank of Canada Interest Rate Announcement – January 17, 2018

Vancouver Real Estate Interest Rates

The Bank of Canada opted to raise the target for its overnight interest rate this morning 25 basis points to 1.25 per cent. In the statement accompanying the decision, the Bank cited recent strong economic data and rising inflation as motivations for the rate increase. The Bank expects growth in the Canadian economy to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019 with consumption and new home construction contributing less to growth than in years past. With the economy returning to full-capacity, inflation is forecast to remain at 2 per cent over the medium term. The Bank also flagged risk to its outlook from ongoing NAFTA negotiations and noted it would remain cautious in considering future interest rate adjustments.

With the Canadian unemployment rate hitting a 40-year low and inflation ticking higher in recent months, the Canadian economy would seem to be operating at full capacity. That argues for a more hawkish approach to monetary policy in order to bring interest rates closer to what the Bank estimates would be neutral for the economy, that is, a level in which the economy is neither running too hot nor too cold. While today’s rate increase was widely anticipated, it did come earlier in the year than previously expected and likely signals further rate increases to come in 2018. Canadian mortgage rates have already moved higher in anticipation of Bank of Canada tightening, which means a much tighter borrowing environment in 2018, particularly given newly implemented mortgage qualifying rules for low-ratio buyers.

Source – BCREA

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Bank of Canada – Interest Rate Announcement December 2017

Bank of Canada Interest Rates

Bank of Canada Interest Rate Announcement – December 6, 2017

The Bank of Canada maintained its target for the overnight rate at 1 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving as expected, with growth slowing in the second half of the year.   On inflation, the Bank expects the continued absorption of economic slack to push core inflation higher in subsequent months.  Importantly, the Bank concluded its statement by noting that rate increases will be required over time, though it will proceed with caution as it assesses the economy’s sensitivity to higher rates.

Although the Bank of Canada has a bias toward raising rates over the next 12 months, it is currently sidelined by low inflation as well as concerns over how higher interest rates will interact with elevated household debt levels.  We anticipate the Bank will remain on hold in early 2018 as it assesses the impact of the forthcoming mortgage stress test, but will look to raise rates one or two times in the second half of next year.

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Bank of Canada Interest Rate Announcement – October 25, 2017

Bank of Canada Rate - Vancouver

The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent. In the press release accompanying the decision, the Bank noted that inflation has edged up slightly and is expected to return to its target of 2 per cent in the second half of 2018 while economic growth is forecast to slow in the final six months of this year following a very strong first half.

 

The Bank emphasized that it will be cautious in making future adjustments to its policy rate as it assesses the sensitivity of the economy to higher interest rates.

There are several factors influencing the Bank’s decision to move to the sidelines. Recent economic data points to a slowing of growth from the soaring heights of the first half of 2017. Moreover, inflation remains muted and newly announced tightening of mortgage regulations will have a significant impact on households, particularly in a rising mortgage rate environment.

We expect that the Bank will take a wait and see approach over the next few months as the impact of its previous rate tightening takes hold.

BCREA

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Bank of Canada Interest Rate Decision – September 6, 2017

Bank of Canada - Vancouver Real Estate - PLACE Real Estate Team

The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 1 per cent. In the press release accompanying the decision, the Bank noted that recent economic data have been stronger than expected but growth is forecast to moderate in the second half of the year.  On inflation, the Bank cited some excess capacity and temporary price shocks as factors keeping inflation below its 2 per cent target.Importantly, the Bank mentioned it will be paying particular attention to the evolution of the economy’s potential growth rate (meaning the economy’s estimated long-run growth rate) as well as to labour market conditions and the economy’s sensitivity to higher interest rates.

The Bank has now removed the stimulus it injected into the Canadian economy in 2015 to offset the impact of falling oil prices. With the economy expanding at a 3.5 per cent rate over the past year, that stimulus is clearly no longer required. The Bank seems to be more concerned about the potential for higher future inflation due to an over-heated economy than on the actual very low inflation observed in recent months. That leaves the door open for further rate increases should economic growth remain robust.

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Bank of Canada Interest Rate Announcement – April 12, 2017

Bank of Canada - Vancouver Real Estate - PLACE Real Estate Team
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that economic growth has been faster than previously expected, boosted by what the Bank sees as temporary spending from the oil and gas recovery and a boost to consumer spending by the Canada Child Benefit. However, export growth remains challenged and business investment is low. Therefore, the Bank judges that it is too early to conclude that the economy has turned a corner.  In addition, CPI inflation is trending below its 2 per cent target while the Bank’s three new measures of core inflation continue to drift lower.

That downward trending inflation, along with uncertainty in United States policy,  seems to be the main barriers keeping the Bank from raising its benchmark overnight rate. While there is some remaining slack in the economy, as measured by the output gap, the Canadian economy has been growing well above the Bank’s estimate of potential growth (1.5 per cent) for three consecutive quarters including a first quarter 2017  in which available data points to above 4 per cent growth.  In addition to strong GDP numbers, the economy is adding jobs at a rate of 35,000 per month over the past six months, the highest level of job growth since 2010. Should this momentum continue, it is likely we will begin to see a more hawkish Bank of Canada in the second half of the year and a first rate increase in early 2018. 
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Bank of Canada Interest Rate Announcement – October 2016

The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that the profile for growth in Canada over the near-term is lower than it previously expected though the Bank is still projecting stronger growth in the second half of 2016. However, the Bank has pushed out its forecast for the economy to return to full capacity to mid-2018 while inflation is projected to return to its 2 per cent target next year. 

There is downside risk to the economy given the Federal Government’s decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada’s public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.

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Bank of Canada Interest Rate Announcement – July 13, 2016

The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is on track to return to its target of 2 per cent by 2017, though heightened global uncertainty presents a risk to that forecast.  The Bank judges the overall risks to its forecast as roughly balanced, but noted financial vulnerabilities are elevated in the greater Vancouver and Toronto areas due to rising home prices.

Economic growth in Canada appears to be slowing as expected in the second quarter.  Our tracking estimate of second quarter real GDP growth is currently at -0.5 per cent following a strong start to the year. Most of the slowdown is due to disruptions caused by the Alberta wildfires which points to a strong rebound as oil production comes back on-line and the reconstruction effort begins. That rebound will be further supported by a boost of fiscal stimulus planned for the second half of the year. An improved outlook for growth and firm but low trend inflation probably rule out any further rate cuts from the Bank, particularly given that long-term interest rates have already fallen to near record lows in recent weeks.  Our forecast remains that the Bank will be sidelined for the remainder of 2016 and through most if not all of 2017.

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Bank of Canada Interest Rate Announcement – May 25, 2016

The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank cited that inflation and economic growth were evolving roughly in-line with expectations, though household vulnerability to economic shocks has moved higher due to high debt burdens.

The Canadian economy got off to a very strong start and will likely end up recording real GDP growth above 3 per cent for the first quarter of the year. However, much of that growth was front loaded and more recent data has been weaker. Growth is expected to slow sharply in the second quarter as a result of the wildfires in Alberta and their impact on oil production before rebounding in the third quarter and ramping up to end the year. Slower growth through the summer months will keep the Bank on the sidelines though a probable tightening of monetary policy by the US Federal Reserve as early as June may add some upward pressure to Canadian long-term interest rates.