A new report by TD Securities predicts the Bank of Canada (BoC) will hold its benchmark rate, where it currently sits at 1.75%, for the remainder of 2019.
The report is called, “BoC Outlook: This is the End” by Andrew Kelvin, TD’s Senior Canada Rates strategist.
He says, recent economic data suggests that if the BoC moves in 2019, it is more likely to be a rate cut than an increase.
This is a dramatic U-turn from what Canadians were hearing only a few months ago.
In Q4 of 2018 economists were predicting up to four rates hikes by the Bank of Canada in 2019. By year-end it was reduced to three and now some, like Kelvin, are saying none.
But, all of this should come as no surprise.
Oil prices fell dramatically in October, business sentiment is lower and household spending is down. Added to this, the latest GDP report shows Canada’s economy came to a screeching halt in the last quarter of 2018. According to Statistics Canada, Canada’s economy grew by just 0.1% in the fourth quarter, for an annualized pace of 0.4%.
In its latest announcement, the BoC held rates steady for the second time in 2019 at 1.75%.
They stated that “Recent data suggests that the slowdown in the global economy has been more pronounced and widespread than the Bank had forecast.” Added to this, the central bank forecasts weak exports and investment in the energy sector and a decline in household spending in oil-producing provinces.
After growing at a pace of 1.8% in 2018 the BoC says it now appears that the economy will be weaker in the first half of 2019, than the Bank had previously projected.
As the BoC also notes in its announcement, exports and business investment also fell short of expectations. All signs that a rate hike is not likely, or ever possible, in this economic climate.
But, not every economist is predicting the same.
Derek Hot is Head of Capital Markets Economics at Scotiabank. In a note about the latest BoC announcement he says “If the (Bank of Canada) hikes this year, then the best-case scenario is toward year-end if all goes smashingly well with respect to rebound expectations."
He adds “I still believe that Q4 softness was transitory and a rebound will be in the cards.” Finally saying, “The report gives more reason for the Bank of Canada to pause its rate-hike path in the first half of the year, but has no material impact on the second half unless a rebound never materializes.”
It is clear that the BoC wants to rate raise rates closer to a normal level, but seems they can’t for the foreseeable future.
This is great news for anyone worried about their mortgage affordability. It also increases the willingness of new home buyers to get into the real estate market, if they feel rates will stay low longer.