Canadian Interest Rates: What Would It Take For Them To Drop In 2019?

Dated: January 13 2019

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Canadian Interest Rates: What Would It Take For Them To Drop In 2019?

It all depends on how stable the global economy is this year.

A "for sale" sign is pictured in front of a house in Toronto, July 17, 2018. Interest rates in Canada could fall this year if the global economy is unstable, Central 1 Credit Union predicts.
CARLO ALLEGRI / REUTERS
A "for sale" sign is pictured in front of a house in Toronto, July 17, 2018. Interest rates in Canada could fall this year if the global economy is unstable, Central 1 Credit Union predicts.

Like many other market observers, Central 1 expects the Bank of Canada will hike its influential key interest rate this year — but the credit union also presents a possible scenario that could see rates sink lower.

"The next Bank rate move is expected to be a quarter-point increase in late October 2019 on the expectation that oil prices have stabilized at a higher level, U.S.–China trade tensions have eased and global growth has stabilized," reads the latest Central 1 Interest Rate Forecast.

Watch: The extreme measures Canadians go through to buy a home. Story continues below.

However, Central 1 notes that there are downside risks. "A worse-case scenario — where U.S.–China tensions escalate or U.S. policies cause more disruptions and its political situation worsens — would bring a rate cut scenario into play," the report continues.

Since July 2017, Canada's central bank has increased its mortgage-market influencing key rate, also known as the overnight rate, five times. The most recent hike was October, when a 25-basis-point increase brought the overnight rate to 1.75 per cent.

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The Bank of Canada's next policy announcement is scheduled for Wednesday, but no movement is expected on the rate front right now.

Central 1's commentary, published late last week, followed the release of a separate report in which Capital Economics predicted a rate cut was in the cards this year.

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Like Central 1, Capital Economics is in part basing its call on oil prices. But where Central 1 suggests recovery is most likely, Capital Economics says policymakers are underestimating the extent to which the economy is being negatively impacted.

That said, Central 1 says softening mortgage demand and slowing home sales may encourage some lenders to incent consumers with lower mortgage rates or other conditions. "Conditions for a mortgage rate cut are forming," Central 1 says.

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Steven Axford

Steve Axford grew up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougars Hockey Team alumni as well as a Victoria Shamrocks (intermediate) alumni. During his time....

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