BoC interest rate cut likely on its way!
13 Jul 2019
While it didn’t happen this week, the likelihood that the Bank of Canada slashes interest rates is growing, according to observers.
“If we were only looking at domestic factors, we might think that the Bank would soon start to consider further rate hikes,” said Stephen Brown, an economist with Capital Economics. “Economic growth is on track to outperform the Bank’s forecasts in the second quarter and core inflation has risen in recent months. But outside of Canada, trade tensions have grown, there are signs that U.S. GDP growth is slowing, and the Fed has signalled that it will soon cut rates. All this means the Bank is highly unlikely to start thinking about rate hikes again. We suspect the next move will be a cut.”
Indeed, the Federal Reserve’s next move—few believe an interest rate cut isn’t on its way—will determine the Bank of Canada’s. However, Jimmy Hansra, owner of Centum FairTrust Financial Group Inc., doubts the rate will move before the fall federal election.
“A rate decrease in Canada all depends on what happens in the U.S.,” he said. “We’re also in an election year and rates rarely move up or down before elections, but at the end of the day, we’re also going to do what the U.S. does. The Fed is talking about decreasing the interest rate a couple of times, and if they do that the Bank of Canada will be forced to do the same thing, otherwise our dollar will be too high.
“It’s not that the Bank of Canada wants to decrease rates, but, moving forward, that’s what’s going to happen.”
While Canada created more jobs through the first four months of this year than all of 2018 combined, Hansra noted that the statistic is superficial and amounts to little more than smoke and mirrors.
“The Bank of Canada is fooling itself if it thinks the economy is as strong as it thinks it is,” he said. “Nothing has been specified about the jobs created; some of them were part-time jobs, for example. In our business, we facilitate money lending and we see what the job market is like—people are struggling out there. People can barely afford to make their mortgage payments on time, so I don’t believe in job numbers being an accurate consensus of where the market is or isn’t.”
