The longer The Bank of Canada has gone without making a change to their overnight rate, the more speculation changes on what they will act in the future. After their last announcement in May it was commonly believed that we wouldn’t see the bank increase rates again for 12-18 months and that we MIGHT even see a drop in the benchmark rate. This month, however, it’s even more certain that we won’t see rate hikes again until 2021 and it’s now an expectation that we’ll see rates drop in 20209.
Scotiabank’s Derek Holt said, “[The Bank of Canada] retained a neutral bias but [was] incrementally more dovish in terms of the whole package.”
TD Securities’ Andrew Kelvin stated, “We continue to look for the Bank of Canada to cut interest rates in January 2020.”
BMO’s Sal Guatieri indicated, “We still see Bank of Canada on hold for the next couple of years.”
It’s not just Canada that has been implementing sluggish monetary policy. “Policy is responding to slowdown: central banks in the US and Europe have signalled their readiness to provide more accommodative monetary policy and,” said the Bank, “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.”
So, what in the literal world is going on? Why are countries slackening their monetary policies? The answer is obvious: global trade tension. This subject has been getting a lot of buzz since 2017 when the US implemented tariffs on China. It’s been a tit-for-tat battle between Trump and Xi ever since while each side tries to outdo one another with one hand and come to a truce with the other.
In particular, the impact on the Canadian economy has been worrisome. Our country is one of commodities and our biggest trade partner is the US. In its release, the Bank said, “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 are projected to grow through this year and the next. The US GDP is expected to slow down to a more sustainable rate. The bank said, “Exports rebounded in the second quarter 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 of Canadian growth and inflation.”
Mr. Trump! Mr. Xi! It’s time to consider that your actions have lasting world-wide impacts!
Prime Minister Lee Hsien Loong, a guest at the G-20 Summit in Osaka, was asked previous to the event how the US and China could mend fences after so much tension. PM Lee replied that both leaders would need to work together to build trust by first making small moves before moving on to larger issues. It was Lee’s hope that Xi and Trump association at the upcoming summit would be a good place for them to start. “After all,” Lee said, “the beginning of rapproachment between US and China was ping pong diplomacy from 1971, at the World Table Tennis Championships in Nagoya.”
Well, no one at the summit presented a paddle. But the serious issue of global trade tensions was mentioned directly in Japanese Prime Minister Shinzo Abe’s opening address. Speaking to the G-20 summit leaders he stated, “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 independently shared their concern and urged Trump and Xi to come to a peaceful conclusion rather than risk disaster through additional tariffs.
The two leaders in question did have a meeting together at the summit that took over an hour. Xinhua, a Chinese state run press agency, reported that the presidents agreed “to start trade consultations between their countries on the basis of equality and mutual respect. Trump also said he would hold off on new tariffs.
Now that you’re on the down low, what does this have to do with your mortgage? In essence, rates are low and expected to stay low and drop even lower. So if you’re in the market for a mortgage or you have one that’s up for renewal you’re going to get a great rate! To find out what the lowest rates are today give us a call!