On April 18, 2018, the Bank of Canada (BOC) decided to hold its key interest rate at 1.25%. This is the second time the rate has held since it increased from 1% to 1.25% in January of 2018.
Part of the reason for the rate staying at 1.25% so far, according to the BOC, is an economic slowdown. The BOC had predicted the economy to expand by 2.5% in the first three months of the year, but it only grew by 1.3%.
The reasons for the lower growth are mainly twofold: weak exports, caused by transportation bottlenecks, and the Canadian real estate market.
BOC referenced the housing market in its April 18 release:
“Slower economic growth in the first quarter primarily reflects weakness in two areas. Housing markets responded to new mortgage guidelines and other policy measures by pulling forward transactions to late 2017. Exports also faltered, partly owing to transportation bottlenecks. Some of the weakness in housing and exports is expected to be unwound as 2018 progresses.”
BOC is hopeful that the economy will pick up in the next three months, primarily due to inflation and wage growth. If the economy grows as they predict, they say more interest rate increases are likely on the horizon.
The April hold is a reprieve for Canadians. A recent consumer debt index survey from MNP found that 47% of respondents said they don’t believe they’ll be able to cover all living and family expenses in the next 12 months without going into further debt.
“Nearly half of outstanding mortgages have interest rate renewals within a year, so monthly mortgage payments are set to rise for a huge proportion of people,” said Grant Bazian, president at MNP, in a media release.
The next BOC announcement is scheduled for May 30. Find the full BOC April 18 interest rate announcement here: https://www.bankofcanada.ca/2018/04/fad-press-release-2018-04-18/.
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