In its latest press release, Canada’s central bank announced it would be holding its key interest rate at 1.25%.
Mortgage rates are bound to increase in the near future, but policy makers are wary of the strong impact of rising interest rates and stress tests on property prices and access to homeownership. Cooling regulations so far have aimed to strike a healthy balance between reigning in the overheated Toronto and Vancouver markets, and protecting first time buyers in smaller Canadian markets.
“Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target,” Bank of Canada wrote in their release.
In a recent RBC poll, 61% of Canadians reported high or moderate concern about interest rate increases – 10% more than last year’s respondents.
Despite Canada’s 40-year record low unemployment rate at 5.8%, and the central bank’s positive sentiments towards the labor market, uncertainty around trade policies has held back investments and export in the first quarter. With the renegotiation of NAFTA dragging into its eight month towards a state of “perpetual negotiation,” representatives from Canada, Mexico, and the United States have yet to agree on the sticking points of the agreement.
Meanwhile, rising gasoline prices and wage increases in Alberta are expected to keep inflation at the bank’s 2% target over the coming months.
GDP was lower than expected in the first quarter of 2018, in part due to the housing market’s reaction to changes in mortgage regulations earlier this year. However, the bank forecasts the Canadian GDP performing over its potential for 2018 and 2019.
5-Year fixed mortgage rates in April ranged from 3.14% (Laurentian, TD) to 5.14%.
The next interest rate announcement from the Bank of Canada is scheduled for May 30.
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