Interest rates might remain flat until next year

by Ephraim Vecina on 13 Jan 2019

The Bank of Canada’s decision last week to retain its trend-setting interest rate at 1.75% is indicative of the institution’s cautious stance that will keep rates flat until at least next year, according to money manager BlackRock Inc.

The central bank will most likely refrain from further hikes “given increased market volatility and more restrictive financial conditions,” BlackRock head of Canadian fixed income Aubrey Basdeo told BNN Bloomberg.

“The bank has latitude to go on an extended pause,” Basdeo explained. “What’s the rush to get to neutral if inflation’s not an issue?”

Lower oil prices are also acting as a downward pressure on inflation.

“The drop in global oil prices has a material impact on the Canadian outlook, resulting in lower terms of trade and national income,” the BoC said.

“With some of the volatility we’ve seen in the financial markets and the lower oil prices’ impact on economic activity in Western Canada, the Bank of Canada can afford to be cautious and will be in no rush to their next rate hike,” TD Bank senior economist James Marple observed in late December

Read more: Economic slowdown, rising rates expose Canadians to crushing debt

However, the central bank emphasized that more hikes will be necessary “over time”, amid predictions that the national economy will expand “with renewed vigour.”

The bank adjusted its 2019 growth forecast to 1.7%, down from the 2.1% prediction in October. This will likely be followed by a stronger economy as early as the second quarter of this year, it added.

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