Bank of Canada Interest Rate Announcement

October 24, 2018

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The Bank of Canada raised its target for the overnight rate by 25 basis points to 1.75 percent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is expected to average growth of 2 percent over the second half of 2018 before slowing to 1.9 percent next year.  The renegotiation of NAFTA is expected to lower uncertainty and boost business investment and exports while households spending and the housing market are stabilizing after the implementation of the B20 mortgage stress test. Inflation is expected to remain close to 2 percent over the Bank’s two-year projection horizon.

The resolution of NAFTA negotiations earlier in the fall paved the way for the Bank of Canada to resume its rate tightening this morning.  While inflation data came in slightly soft in September, the Canadian economy is still operating above its long-run trend which should keep inflation near the Bank’s 2 percent target. The Bank will meet one final time in 2018 at its December meeting, at which we expect policymakers will maintain the target rate at is current level before raising the target rate to 2 percent in January 2019.  As the target rate continues on its path higher, Canadian mortgage rates will continue to rise, ultimately resulting in a 6 percent qualifying rate by the end of 2019.

Copyright BCREA – reprinted with permission