Mortgage Logic

January 9, 2019 – Bank of Canada Makes No Change to its Key Rate

The Bank of Canada has decided to leave its key rate untouched (at 1.75%) with its announcement today. As expected, their hawkish view on ramping up rates has cooled off. Major FI prime rates will likely stay at 3.95%.

The Canadian economy is not performing as expected right now for the following reasons:
• Lower oil prices
• Onerous taxation policies – personal & corporation
• Poor wage growth
• Weaker domestic consumer spending and housing investment
• Large debt loads (both government & personal)
• Global demand for goods and services is generally softening
• Trade disputes among larger economies (China & USA)

All of these factors are taking their toll on the Canadian economy. They are all reasons why the BoC will be forced to lower their key rate in the short to medium term.

On the positive side, non-energy exports should improve with the continued lower-valued Canadian dollar. The unemployment rate is down, described by the BoC “…at a 40 year low.”

In summary, the Canadian economy is not as rosy as the BoC seems to think it was going to be. The biggest single concern for Canadians and their economy longer term is; how will the federal and provincial governments manage their finances?

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