Don’t hold your breath waiting for an interest rate increase on Wednesday.
Canada’s GDP grew at a slightly slower pace than expected in the fourth quarter of 2017, and the likely culprit is Canadians buckling under the weight of their debt.
Paul Meredith, a mortgage broker with CityCan Financial Corporation, doesn’t think the Bank of Canada will announce another prime rate increase tomorrow like it did in January, but he believes there’s at least one more to come before the conclusion of the year.
“I would not expect to see any rate increase this week, however, I think we can expect a rate increase before summertime, and another one possibly later this year,” he said. “Although if the economy continues to remain sluggish, I wouldn’t be surprised if they pushed these rate increases out further.”
Make no mistake, the Canadian economy is still in good shape, and while outrageous household indebtedness is reason for consternation, last year’s fourth quarter growth of 1.7% was a hair short of the 2% projection.
Meredith already had his suspicions that a March 7 prime rate increase might not be forthcoming.
“The fact that bond yields have been dropping since mid-February is also a strong indicator that there won’t be an increase to the prime rate this week,” he said.
Steve Garganis, a Mortgage Intelligence broker, thought as early as a couple of months ago that the rate hike was coming, but pointed to stock market volatility and higher-than-expected unemployment as the reasons he’s changed his mind.
"I did think [there would be a rate increase on March 7] earlier this year, and with the language from the Bank of Canada’s governor, all indications were that they would raise the rates. But I think with the stock market rollercoaster that we’ve seen, some of the latest unemployment stats that are showing that we have higher unemployment—lost jobs—there’s no real reason to raise the interest rate this week.”
Another factor looming over the Bank of Canada pertains to the North American Free Trade Agreement—and, in particular, the ire it’s drawn from U.S. President Donald Trump. Garganis believes a rate hike is a strong possibility on April 18, but noted it could be contingent on the NAFTA rhetoric coming from south of the border.
“I think it’s very possible to see the rates go up in April but I think we’ll just have to wait and see what’s happening in the market,” said Garganis. “Part of what I’m concerned about is this NAFTA thing; it’s a little bit of a wild card. We’re all sitting on our hands because there’s nothing we can do. We can’t make too many plans until that sorts itself out.”