Odds of March Rate Hike Fall

The 2017 economic statistics were promising. The Canadian economy grew at a 3% rate for 2017, the best it had seen since 2011. The annualized growth of 4%+ for the first two quarters was slowed to a more acceptable 1.7% in the last quarter of 2017. This was a little below the expected 2% growth of economists and 2.5% forecast by the Bank of Canada, but it is within the desired range for the economy and a sign that the overheated economy was cooling to a manageable, stable growth rate.  

In January, the Bank of Canada raised interest rates 25 basis points. This removed the stimulus put in place as the price of oil collapsed because it seemed to be no longer needed. In fact, Canada’s economy was at greater risk of overheating. The Toronto and Vancouver housing markets were outrageously expensive, leading to regulations like universal stress tests and tighter lending standards.  

Business investment hit 9.5% in the fourth quarter of 2017. The housing market saw a flood of transactions as people tried to lock in purchases before stricter regulations went into effect. The surprise was the slowdown in household spending. Consumer spending growth was at the lowest rate seen since 2016.  

Long-term prospects for growth are also hampered by businesses investing more in new construction, rehabbing existing buildings and buying transportation equipment over building up inventories. The slowdown of growth to just below the 2% rate and limits on future growth reduces the price pressure that would have guaranteed a rate hike sooner rather than later. There are also concerns that the 1.7% growth rate is deceptive because of the spike in residential spending hitting an annualized 13.4% rate in the last quarter of the year. It was partially due to new housing starts but also a wave of buyers trying to buy homes before the tighter mortgage rules went into effect. That was likely responsible for a full percentage point of the 1.7% growth rate, according to Statistics Canada.  

A Reuter’s poll of analysts predicted a rate hike in the second quarter of 2018 and again in the fourth quarter. The consensus there was that rate hikes would hit 1.75% by the end of 2018. Markets are predicting a 72% chance of a rate hike in May while a nearly 100% chance of a rate hike in July. This is down a little form the 80% chance of a rate hike in May previously predicted. Analysts are expecting interest rates to hit 2% by early 2019.  

For those who were considering buying a home this year, consult with a Fort McMurray mortgage broker now to lock in today’s low rates in advance of the rate hike certain to come later.  Call Jodi today your trusted Fort McMurray Mortgage Broker to get more in depth for your personal financial situation.