On April 18th, Governor Poloz and his Governing Council decided to leave the benchmark interest rate at 1.25%. This is the second meeting where they’ve decided to leave rates unchanged. However, all the signs suggest they won’t do more of the same at the next meeting making it a perfect time to buy. Contact your Red Deer Mortgage Broker today.
These policy makers are likely to raise rates at their next interest rate meeting in May. If they do hold steady, they’ll almost certainly raise interest rates in July.
Why is there certainty that interest rates must rise in canadian cities like Red Deer? For one thing, inflation is above the 2% target. Policy makers will need to raise interest rates to keep prices from going up too quickly. Then there’s what they’ve already said publicly. “This progress reinforces Governing Council’s view that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.”
Why weren’t interest rates raised at this last meeting? Wages have been stagnant, though they’re “showing signs of life”. Wages aren’t yet going up at the same rate as prices, but stronger wage growth is necessary before they’re willing to raise interest rates.
Domestic consumption was called “robust” by policy makers. The Bank of Canada actually revised the growth rate it thinks the economy can sustain without triggering inflation from 1.4% to 1.8%, since more people joining the workforce means more people are contributing to GDP. Both domestic demand for Canadian goods and services and international demand (including by the U.S.) are strong which is promising for Red Deer’s economy and real estate market. The Central Bank sees growth of 2% for 2018 and 2.1% in 2019. This is significantly higher than the initially projected 1.6%. If GDP growth does hit or exceed 2%, the Bank of Canada has now hit the growth rate at which they’ve said it is necessary to slam on the brakes.
Suppose interest rates were raised at the next Bank of Canada meeting in May. The exact amount they’d raise rates isn’t certain, since officials have said they don’t know how aggressive they’d need to be to keep inflation in check.
The general consensus is that they wouldn’t follow it up with another rate hike in July; there certainly wouldn’t be consecutive rate hikes as were seen in the summer of 2017. Policy makers have said they intend to remain cautious and conservative, carefully considering the impact of rate hikes on highly indebted households. Nor do they want to raise rates so fast that exporters can’t keep pace with the global market, since that would hurt Canada’s export-dependent economy. Exporters are already under-whelmed because of Canada’s relatively high production costs, though uncertainty about NAFTA due to President Trump’s threatened trade war certainly hurts, too. This has slowed down investment in the Canadian economy.
That said, Canada’s economy is still in good shape. Growth is steady and within acceptable parameters, but officials are ready to start withdrawing stimulus by slowing raising interest rates. And we’re almost certain to see those rates go up by July, 2018.
Contact Josh Tagg, Red Deer’s First Choice Mortgage broker to secure your Mortgage Interest Rate