In its last announcement for the year, the Bank of Canada revealed it is leaving its benchmark interest rate unchanged at one per cent. This comes after the Bank raised rates twice in 2017 – once by a quarter point in July and again by a quarter point in September.
None of the big five banks had given their forecast for this announcement, indicating there was no clear idea of what the Bank was going to do. But the vast majority of economists polled by Bloomberg expected the Bank to keep its rate steady. With positive job growth and better-than-expected GDP data, one could even make a case that Canada is ready for higher rates.
Thriving global economies dictating lower rates in Canada
In a statement released immediately after the announcement, the Bank says the global economy is evolving largely as expected – similar to what was conveyed in the October Monetary Policy Report (MPR).
Global growth in advanced economies is making the Bank nervous, pushing it to keep rates lower in Canada.
The Bank says, “Growth has firmed in other advanced economies. Meanwhile, oil prices have moved higher and financial conditions have eased. The global outlook remains subject to considerable uncertainty, notably about geopolitical developments and trade policies.”
Specifically, uncertainty south of the border continues to concern the Bank. Growth in the United States for the third quarter was stronger than forecasted, but the Bank says it’s “still expected to moderate in the months ahead.”
Still, BoC seemingly confident in our economy
The Bank seems bullish on Canada in its statement, saying “employment growth has been very strong and wages have shown some improvement, supporting robust consumer spending in the third quarter.”
Business investment continues to contribute to growth after a strong first half, and public infrastructure spending is becoming more evident in the data. And while exports declined more than expected in the third quarter, this was following exceptionally strong growth earlier in 2017. The latest trade data supports the MPR projection that export growth will resume as foreign demand strengthens.
In addition, the housing market, which remains a big concern of the Bank’s, is moderating as expected.
Maintaining the overnight rate is good news for Canadians with a variable rate mortgage or a line of credit. The cost of borrowing will remain the same, as commercial banks will likely keep their prime lending rate steady at 3.2 per cent. But the Bank warns Canadians to prepare for higher rates in 2018 –rates may be steady for now, but higher interest rates will likely be required over time.
The loonie fell slightly upon the news, falling just below $0.79 USD.
The next scheduled overnight rate announcement is Jan. 17, 2018. The Bank’s outlook on the economy and inflation, including risks to the projection, will be published in the MPR at the same time.