Outlook still clouded by uncertainty
The Bank of Canada announced on May 24th, 2017 that it was keeping its trend-setting target overnight lending rate unchanged at 0.5 per cent.
The Bank indicated inflation remains below its 2% target and that the Canadian economy still has plenty of slack. Additionally, while recognizing a number of encouraging economic developments such as improving business investment, job growth and strong consumer spending, it also expects economic growth will slow down and economic “uncertainties… continue to cloud the global and Canadian outlook.”
Given U.S. trade policy uncertainties, slower expected economic growth and tame inflation, it is highly unlikely that the Bank will hike its trend-setting overnight lending rate this year. However, an expected increase in Canadian bond yields and recent regulatory increases in capital requirements for mortgage lenders may cause longer term fixed mortgage interest rates to edge higher later in 2017.
As of May 24th, 2017, the advertised five-year lending rate stood at 4.64 per cent, unchanged from both the previous Bank rate announcement on April 12th and from one year ago.
The next interest rate announcement will be on July 12th, 2017. It will be accompanied by the release of the Monetary Policy Report, which will update the Bank’s economic forecast.