Are lower interest rates on the horizon?

by Justin da Rosa20 Jan 2017
If so, that would alleviate some of the extra pressure placed on potential home buyers caused by tightened mortgage rules. Economists weigh in.

The Bank of Canada said it is willing to cut interest rates should President Donald Trump’s policies endanger the Bank’s inflation target

“Should any of those downside risks materialize and put our inflation target at risk then we would have the room to manoeuvre,” Poloz told reporters following Wednesday’s rate announcement. “Yes, a rate cut remains on the table and it would remain on the table as long as those downside risks were still present.”

The Bank of Canada maintained its target for the overnight rate at 0.5% Wednesday, but it seems a future cut is not yet off the table.

That has economists postulating about the possibility of such a move.

“Some have suggested that the Bank of Canada might cut interest rates again next year, particularly if housing slows too much. Judging from comments made by the CEO of the CMHC, a slowdown in housing is the intended result of the new rules,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres, said in her report following the rate announcement. “Clearly, Governor Poloz sees the enhanced mortgage stress tests and changes in the insurability of mortgages as mitigating his concerns of overextended homebuyers.

“It would take a material negative shock to growth for the Bank to cut rates.”

So a major housing downturn could also influence the Bank of Canada’s future rate plans, according to Cooper.

However, another major economist suggested the current rate will be maintained for the foreseeable future.

“Caution is once again the key to the Bank of Canada’s thinking,” Brian DePratto, senior economist with TD Economics, told the Financial Post. “Heightened uncertainty and the remaining economic slack both point to a bank that is likely to maintain its policy rate at 0.5 per cent for some time to come.”


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