Instead of raising rates again the BOC (Bank of Canada) decided to hold off. With oil prices still low and the national economy losing the consumption boost of the holidays, the bank decided to give the economy a breather. Rates remain at 1.75%, with inflation having fallen to 1.7%, under the BOC’s benchmark of 2%.
The BOC’s decision mirrors that of the Fed in the U.S., where Chairman Jerome Powell recently outlined that the U.S. Central Bank was ‘flexible’ and would also ease off on money tightening given recent stock market fluctuations. The BOC pause flies in the face of the past consistency of its rate rises. It’s also likely that there is growing pressure on the BOC from a wide variety of market sources, especially given recent negative real estate statistics.
Keep in mind that this is an election year in Canada.
Politicians despise higher rates for obvious reasons. The BOC would be wise to include political considerations into its decision making, and stretching out the rate rise schedule would be helpful to Prime Minister Trudeau.
Overall, the pause will be beneficial to the real estate sector, especially given recent difficulties and poor stats. Political efforts to cool the market could easily shift to a desire to cushion the sector and strengthen it. Lower oil prices and weaker consumption will also reduce inflation, further pressuring the BOC to hold off on rate rises. To facilitate economic stimulus in the event of a hypothetical future recession, the BOC would ideally need to quickly cut rates by roughly 4%. This is the likely target long term.