The Bank of Canada announced today that it is holding the benchmark interest rate unchanged at 0.5% with an optimistic outlook, noting that “federal and provincial measures are still expected to support growth in 2017” and predicting “a return to full capacity around mid-2018” as earlier projected in October. The Bank factored in Trump’s tax policies i.e. stimulus spending, resulting “in a modest upward revision to its U.S. growth outlook” which should benefit Canada. The Bank did not take into account U.S. policy changes that could negatively impact us, noting that there are “significant uncertainties weighing on the outlook”.
Last fall, the Ministry of Finance introduced four new mortgage tightening measures intended to cool the housing markets (aimed primarily at Vancouver and Toronto), reduce foreign investor home flipping, and control the levels of Canadian household debt. The Ministry also introduced risk sharing on mortgages for the Chartered Banks which puts upward pressure on mortgage rates as lenders need to set aside higher levels of capital for certain types of funds.
We expect to see interest rates staying low in Canada well into 2020. The Bank of Canada believes it must continue its monetary policy of ultra-low rates to control inflation, stimulate other sectors of the economy besides housing and spur our Canadian export market.