In May it was pretty certain that the Bank of Canada would not be making any changes to the overnight rate any time soon and the same remains true this month after their recent announcement. In fact, economists are projecting that it may be 2021 before we see rates rise again and more and more speculators agree that we’re going to start seeing cuts to the overnight rate.
Derek Holt of Scotiabank said “[The Bank of Canada] retained a neutral bias but [was] incrementally more dovish in terms of the whole package.”
Sal Guatieri of BMO said, “We still see Bank of Canada on hold for the next couple of years.”
And Andrew Kelvin of TD Securities said, “We continue to look for the Bank of Canada to cut interest rates in January 2020.”
Canada is not alone in this kind of policy making. The Bank said, “Policy is responding to slowdown: central banks in the US and Europe have signalled their readiness to provide more accommodative monetary policy and further policy stimulus has been implemented in China.”
Guatieri also went on to say, “We are anticipating a couple of rate cuts from the Fed[eral Reserve]. That could put upward pressure on the Canadian dollar the Bank of Canada might need to address by cutting rates.”
What’s going on? Why are countries around the world easing their financial policies? The answer: global trade tensions. This has been an ongoing issue since 2017 when the US implemented tariffs on China. Since then it has been a tit-for-tat battle back and forth while Trump and Xi simultaneously try to one up each other and reach a compromise.
How is this impacting Canada in particular? Ours is a country of commodities and the US is our biggest trade partner. The bank stated, “trade conflicts between the United States and China, in particular, are curbing manufacturing activity and business investment and pushing down commodity prices.”
However, global and Canadian GDP are both expected to grow through 2019-2021 while US GDP slows and becomes more sustainable. “Exports rebounded in the second quarter,” said the bank, “and will grow moderately as foreign demand continues to expand. However, ongoing trade conflicts and competitiveness challenges are dampening the outlook for trade and investment… [The council] will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.”
Come on Trump! Come on Xi! Figure it out!
Before the recent G-20 Summit in Osaka, Singapore Prime Minister Lee Hsien Loong, a guest at the summit, was asked how the US and China could rebuild strategic trust after so much tension. PM Lee said that both countries would need to work together at the top level and make small moves to build trust before going on to larger issues. It was his hope that Trump and Xi’s interaction at the upcoming summit would be a good place to start. “After all, the beginning of rapproachment between US and China was ping pong diplomacy from 1971, at the World Table Tennis Championships in Nagoya,” said PM Lee.
There wasn’t any ping pong at the summit last month. But the issue of global trade was a big one on the table. In fact, Japanese Prime Minister Shinzo Abe opened the summit with a warning to the G-20 leaders, stating, “The tension surrounding trade and geopolitics is rising. The responsibility of G-20 is to counter such downside risks and take necessary actions” Leaders from Russia, India, and Europe each expressed their concern and asked that Trump and Xi work things out rather than risk disaster through additional tariffs.
Trump and Xi had a meeting together at the summit which reportedly took more than an hour. Chinese state-run press agency Xinhua reported that both presidents agreed “to restart trade consultations between their countries on the basis of equality and mutual respect.” The US leader said he would also hold off on new tariffs.
So what the heck does all of this have to do with your mortgage? Well, rates are down, they’re expected to stay down for the next couple of years and it’s probable they’ll get even lower. If you’re up for renewal now or in the next year or two you’re most likely going to end up with a rate you’ll be happy about! And the same goes for new owners!
To get the best rate available contact us today!