While the red hot real estate numbers in Toronto are grabbing most of the attention, news about interest rates continues to simmer on the back burner.
The Bank of Canada has, once again, decided to maintain its policy rate at 0.5%. That is no surprise. What is a surprise is the very short statement (shorter than this article) that accompanied the decision. Many see it as simply a placeholder for the Bank until its Monetary Policy Report next month. The Bank cites “significant uncertainties”, particularly in the United States, and “persistent economic slack” as the key reasons for holding the rate where it has been since about the middle of 2015. Both indicators have market watchers maintaining that there is still a chance for a rate cut.
In the U.S., the Federal Reserve has given its most direct indication yet that rates will continue to rise, and soon – likely later this month. Fed chair Janet Yellen says employment and inflation are meeting expectations and if that continues further adjustments will “likely be appropriate”. The U.S. central bank raised its rate in December and has been estimating three hikes in 2017. The next Fed meeting is in the middle of this month.
Given the traditional relationship between Canada and United States, any rate increases there will likely diminish the probability of a rate cut here. Of course, the Bank of Canada makes its own, independent, decisions about interest rates. But this country’s economy is highly integrated with the U.S. and decisions there inevitably seep across the border and have an effect here.