In May when the Bank of Canada released its statement that they would not be increasing interest rates, almost nobody was surprised. In fact, there were a few who thought it meant that down the line we would see the central bank making cuts to its interest rates.
This month the bank once again announced that they have not increased interest rates and even more people are of the opinion that we’re not going to see the rate go up until 2021 and that we’ll be seeing the bank cut rates by early next year.
Andrew Kelvin of TD Securities stated, “We continue to look for the Bank of Canada to cut interest rates in January 2020.”
Derek Holt of Scotiabank surmised, “[The Bank of Canada] retained a neutral bias but [was] incrementally more dovish in terms of the whole package.”
And Sal Guatieri of BMO said, “We still see Bank of Canada on hold for the next couple of years.”
Canada isn’t the only country taking a step back. The Bank stated, “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 stated, “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 in the actual world is going on? Why are countries across the globe easing financial policy? The answer may be obvious: global trade tensions. This issue has been ongoing since 2017 when the US placed tariffs on China. It’s been a tit-for-tat battle between China and the US while Xi and Trump try to one-up each other and simultaneously come to some kind of resolution.
Despite the fact that this conflict is happening outside of Canada it has had a direct impact on our country. Canada deals largely in commodities and the US is our largest trading partner. “Trade conflicts between the United States and China, in particular, are curbing manufacturing activity and business investment and pushing down commodity prices.”
Despite this, Canadian (and global) GDP is expected to grow through 2019 and 2020. The US GDP is expected to to slow and become more sustainable. In Canada “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 bank went on to say that “[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.”
Phew! What a mouthful! What does it mean? Canadian goods are in demand but until someone comes up with a solution to the trade conflicts our country is going to be sitting on to be taking a hit. Come on Trump! Come on Xi! Figure it out!
Lee Hsien Loong, prime minister for Singapore, was asked previous to the Osaka G-20 summit how China and the US could rebuild strategic trust after so much tension. It was Prime Minister Lee’s opinion that both countries would have to work together at the top level and start by making small moves before moving on to larger issues. It was Lee’s hope that Trump and Xi would take the summit as an opportunity to interact in such a way. “After all,” PM Lee said, “the beginning of rapproachment between US and China was ping pong diplomacy from 1971, at the World Table Tennis Championships in Nagoya.”
Nobody at the summit produced a ping pong paddle last month, but the issue of global trade was on the table. Japanese Prime Minister Shinzo Abe went so far as mentioning it directly and offering a warning in his opening statement. “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 India, Russia, and Europe also added their concern and asked Trump and Xi directly to find a solution rather than risk disaster through additional tariffs.
Xi and Trump met together during the summit for more than an hour, according to reporters. The Chinese state-run press agency Xinhua stated that the agreement between the two presidents was “to restart consultations between their countries on the basis of equality and mutual respect.” Trump later went on to say that he would hold off on any new tariffs.
So, now that you have the Cliffs Notes, what does all of this have to do with your mortgage all the way back in Alberta? Rates are low and expected to stay down until they get cut even lower in the next couple of years. If your mortgage is up for renewal (or if you’re looking to buy) you’re probably going to get a low rate you’ll be happy with. And if you aren’t up for renewal it might be worth it to remortgage.
Contact us to find out what the lowest rate available is today.
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