In May the Bank of Canada released it’s announcement that they would not be changing their interest rates. The overnight rate had remained unchanged since October and financial speculators predicted that the rate would remain unchanged until next year. A very few economists expected to see the overnight rate take a cut in the next year.
This month the Bank once again announced that the rates would remain unchanged and now people are feeling even more confident that we’ll be seeing a cut by next January and that we won’t be seeing another hike until 2021.
“We still see Bank of Canada on hold for the next couple of years,” said BMO’s Sal Guatieri.
Scotiabank’s Derek Holt said, “[The Bank of Canada] retained a neutral bias but [was] incrementally more dovish in terms of the whole package.”
TD Securities’ Andrew Kelvin said, “We continue to look for the Bank of Canada to cut interest rates in January 2020.”
The Bank of Canada isn’t the only one making changes to financial policy. “Policy is responding to slowdown,” reported the Bank, “central banks in the US and Europe have signalled their readiness to provide more accommodative monetary policy and further policy stimulus has been implemented in China.”
Guatieri also added, “We are anticipating a couple of rate cuts from the Fed[eral Reserve]. That could put upward pressure on the Canadian dollar the Bank of Canada might need to address by cutting rates.”
What is happening around the world to cause these banks to loosen up on their financial policies? Global trade is happening. Or rather, it’s NOT happening. Tensions have been high over the globe ever since the US implemented tariffs on China back in 2017. Trump and Xi have been exchanging tit-for-tat ever since, pausing periodically to try to come to some kind of compromise.
This battle of wills is affecting countries around the world, but in particular, Canada is feeling the pinch. Our economy is largely based in commodities and our largest trading partner is the US. “Trade conflicts between the United States and China, in particular,” stated the Bank, “are curbing manufacturing activity and business investment and pushing down commodity prices.”
Despite that, the Canadian GDP is expected to grow over the next two years. The global GDP is expected to do the same, while the US GDP is expected to become more sustainable as it slows. “Exports [in Canada] rebounded in the second quarter and will grow moderately as foreign demand continues to expand,” said the Bank. “However, ongoing trade conflicts and competitiveness challenges are dampening the outlook for trade and investment… [The governing council] will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.”
Trump! Xi! Get it together!!
Recently a G-2o summit was held in Osaka. Before the summit, guest prime minister Lee Hsien Loong of Singapore was asked what he thought could be done to ease tensions and rebuild trust between China and the US. PM Lee was of the opinion that both leaders would need to come together and make small moves to build trust before moving on to larger issues. He was hopeful that Trump and Xi would take their time together at the summit as an opportunity to do just that. “After all, the beginning of rapproachment between US and China was ping pong diplomacy from 1971, at the World Table Tennis Championships in Nagoya,” said PM Lee.
Unfortunately, there were no ping pong battles at the summit, but the subject of trade tensions was laid out on the table in Japan’s Prime Minster Shinzo Abe’s opening address. “The tension surrounding trade and geopolitics is rising. The responsibility of G-20 is to counter such downside risks and take necessary actions.” His warning was later followed by leaders from Europe, India and Russia who each voice their concern and requested that Xi and Trump work it out rather than risk disaster through further tariffs.
The Chinese and US leaders did meet together for over an hour at the summit. Xinhua, a Chinese state-run press agency, reported that both leaders agreed “to restart trade consultations between their countries on the basis of equality and mutual respect.” Trump later confirmed to another source that he would hold off on more tariffs.
So, what does all this global unrest have to do with your little home back in Alberta? Rates are low and are expected to stay low and get even lower in the near future. If you’re looking to buy a house, if your mortgage is up for renewal, or if you’re hoping to refinance, the time is right! Contact us to get the lowest rates today!