After the Bank of Canada announced in May that they had not made any changes to the overnight rate economists estimated that we wouldn’t see a hike in the rate again until late in 2020. A few even predicted that we’d see at least one rate cut before then.
This month the Bank once again announced that there has been no change made to the overnight rate and the general consensus among economists this time is that we won’t see a hike until the start of 2021. Most speculators are expecting to see a cut to the overnight rate in January 2020.
“[The Bank of Canada] retained a neutral bias,” Derek Holt of Scotiabank said, “but [was] incrementally more dovish in terms of the whole package.”
“We still see Bank of Canada on hold for the next couple of years,” Sal Guatieri of BMO said.
“We continue to look for the Bank of Canada to cut interest rates in January 2020,” Andrew Kelvin of TD Securities said.
Canada isn’t the only one taking an increasingly gentle approach to monetary policy. “Policy is responding to slowdown,” explained the Bank, “central banks in the US and Europe have signalled their readiness to provide more accommodative monetary policy and further policy stimulus has been implemented in China.”
Guatieri also said, “We are anticipating a couple of rate cuts from the Fed[eral Reserve]. That could put upward pressure on the Canadian dollar the Bank of Canada might need to address by cutting rates.”
What’s tying all these countries together and causing the central banks to react? Answer: global trade tensions. Since the US placed tariffs on China in 2017 this issue has grown more and more troublesome. Each side has exchanged tit-for-tat comments, threats and tariffs and only periodically pauses to take a breath and actually try to work out a solution.
In the meantime, Canada, a country of commodities, has been sitting on the sidelines waiting for our biggest trade partner, the US, to end the fight and get back to business. The central bank stated, “trade conflicts between the United States and China, in particular, are curbing manufacturing activity and business investment and pushing down commodity prices.”
Despite the mounting tension in global trade, the global and Canadian GDPs are projected to grow throughout 2019-2021. It’s expected that the US GDP will slow and to a more sustainable pace. “Exports rebounded in the second quarter,” announced the bank, “and will grow moderately as foreign demand continues to expand. However, ongoing trade conflicts and competitiveness challenges are dampening the outlook for trade and investment… [The council] will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.”
Trump! Xi! Don’t make me turn this car around!
Before the G-20 summit in Osaka, Lee Hsien Loong, Prime Minister for Singapore and guest at the summit, was asked how he thought China and the US might begin to restore strategic trust after so much turmoil. PM Lee was of the opinion that both countries would need to work together at the top and start by making small maneuvers before moving on to bigger issues. He hoped the upcoming summit would be a good place to start. “After all,” PM Lee said, “the beginning of rapproachment between US and China was ping pong diplomacy from 1971, at the World Table Tennis Championships in Nagoya.”
Sadly, there was no ping pong to be seen at the summit, as entertaining as that would have been. The topic of global trade tensions was brought up immediately, however. Japanese Prime Minster Shinzo Abe mentioned it directly in his opening address. “The tension surrounding trade and geopolitics is rising. The responsibility of G-20 is to counter such downside risks and take necessary actions.” This warning was echoed by leaders from India, Europe and Russia who each shared their concern and asked China and the US to reach a solution rather than risk disaster through additional tariffs.
Xi and Trump did have a sit down meeting at the summit which, according to on site press, lasted over an hour. Chinese state-run press agency, Xinhua, reported that both presidents “to restart trade consultations between their countries on the basis of equality and mutual respect.” Additionally, another news outlet reported Trump saying he would forego additional tariffs for now.
So what do the grudges of world leaders have to do with your mortgage back in Alberta? To put it simply: interest rates are low and they’re going to get lower. If you’re coming up on renewal, if you’re looking to buy a home, or if you’re thinking of remortgaging, now is the time! Contact us today to get the lowest rates!