Canadian Housing Investment Part of Bank of Canada Motivation for January Hold
On January 9, 2019, the Bank of Canada (BOC) announced that the overnight interest rate would stay at 1.75% (the rate set in October of 2018) for the time being.
Part of the reason for the hold was Canadian housing investment.
“…consumption spending and housing investment have been weaker than expected as housing markets adjust to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates,” the BOC stated in a release.
“Household spending will be dampened further by slow growth in oil-producing provinces. The Bank will continue to monitor these adjustments.”
Between mortgage guidelines introduced in January 2018, interest rates increasing from 0.5% of 1.75% from July of 2017 to now, and other measures, such as the foreign buyers’ tax, the Canadian housing market has been slowing down.
But it’s not just the real estate market. With higher interest rates and less disposable income to spend, consumers are spending less on non-essential goods. While there are other factors that drive the economy, the drop in consumer spending is having an effect.
The real estate market wasn’t the only reason for the BOC’s decision. Two other factors were the global economic outlook – particularly the U.S.-China trade conflict — and global oil prices. The BOC has said it will continue to monitor these items.
Interest rate increases have been predicted to slow down in 2019, but the BOC doesn’t think they’ll stop altogether.
“Weighing all of these factors, Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” the BOC stated.
“The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy.”
The next Bank of Canada interest rate announcement is scheduled for March 6, 2019. View the full text of the BOC’s January 9 decision here: https://www.bankofcanada.ca/2019/01/fad-press-release-2019-01-09/.
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