Canada’s central bank is giving up on interest rate hikes this year

The Bank of Canada won’t be hiking its policy rate any time soon, says one economist — and that should be welcome news for mortgage borrowers with variable rates.

On Wednesday, Canada’s central bank held its policy rate, which influences variable mortgage rates, at 1.75 percent, where it has stood since October.

“In its policy statement [the Bank of Canada] dropped any reference to future interest rate hikes,” notes Stephen Brown, the senior Canada economist for Capital Economics, in a response to the latest policy decision.

That’s a departure from previous central bank announcements as well as the consensus among market watchers not so long ago. It signals the Bank of Canada “gives up on future rate hikes,” the report suggests.

Towards the end of last year, it was generally anticipated the Bank of Canada would continue on its path of gradually increasing the overnight rate, as it’s also called — possibly twice in 2019.

Since the summer of 2017, the bank has hiked the overnight rate by 25 basis points for a total of five times.

Looking ahead, the general consensus is now that the bank won’t be hiking the rate again this year, with GDP growth weaker than expected amid broad housing downturns in Western Canada’s major markets and a still-weakened energy sector. Most in the no-hike camp say the bank will remain on the sidelines this year.

The central bank now projects that Canada’s economy will expand by a paltry 0.3 percent in the first quarter.

Capital Economics — while among one of the earlier observers to write off any near-term rate hikes — still remains an outlier; it forecasts the policymakers will trim the overnight rate three times, with the first cut coming as early as the second half of 2019.

“Overall, we think that the economy could fare a bit better in the near term than the Bank expects,” writes Brown. “But that doesn’t change our view that persistently below-potential GDP growth this year will cause the Bank to cut interest rates three times, starting in the third quarter,” he continues.

Josh Sherman