The April 2018 decision by the Bank of Canada was to keep interest rates steady at 1.25%. This is, historically speaking, a very low rate. The question for everyone else was not if they’d raise interest rates that had been kept low to prop up the economy but when they’d go up. The decision to keep rates steady is somewhat in contrast to the repeated rate hikes of 2017. Contact a Grande Prairie Mortgage Broker today to secure and lock in your low rate.
Why are interest rates being held steady when so many expect them to rise? Wage growth has appeared, though one would expect it to be much stronger given that unemployment is below 6%, a four decade low rate of unemployment. This fact actually led the government to assume that potential growth is now 1.8%, significantly higher than the previously estimated 1.4%. Inflation is close to its ideal of 2%.
Oil prices are rising; this in and of itself is great for Grande Prairie, since the resurgence of oil helped Canada’s GDP hit an annual growth rate of 4% in the first half of 2017. Businesses offering international services are booming. However, the export of non-energy goods is lagging behind expectations. Exports were initially projected to add 0.6% to the Canadian GDP this year; that’s been revised down to nil. Issues ranging from shortages of skilled labor to transportation bottlenecks to businesses holding back on investment due to fear of a trade war because of Trump’s threats to slap tariffs on everything contributed to the slow down. “Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks,” the Bank of Canada said. And that uncertainty may already be dragging on Canada’s economy. The rate of growth for the first three months of 2018 was predicted to be 1.3%, well below the initial January projection of 2.5%. In comparison, Canada’s economy grew an impressive 3% in 2017.
While foreign demand is somewhat weaker than expected, the government thinks that it will pick up later in the year. Debt-ridden households in Canada haven’t slowed down their purchasing much since the 2017 rate hikes. There is concern that too many rate hikes in a short period of time would cripple domestic spending, but that is why a rate hike later in 2018 would probably be followed by another long pause. That would give Canadian households in cities like Grande Prairie more time to adjust to higher borrowing costs.
The Bank of Canada stressed that it needs more time to understand the impact of the rules put in place to slow down Canada’s real estate market. These rules included requiring stricter stress tests for all buyers. Borrowers have to have a higher loan to value ratio, and there are restrictions now on lending arrangements that were used to get around the loan to value limit.
Governor Poloz issued a statement that they’d hold off on a rate hike now but expects rate hikes to be necessary over time. They said they’d continue to be guided by incoming data and changes to wage growth and inflation. Economists are expecting one or two quarter point rate hikes later in the year as economic data improves, one of which they think will happen by the Bank of Canada’s July meeting. However, a minority of economists think there will only be a single quarter point interest rate hike during 2018.
Contact Jodi Whalen, Grande Prairie’s First Choice Mortgage Broker today to discuss your Mortgage Options