Residential Market Commentary - Another Interest Rate Hold

The Bank of Canada has held its trend-setting Policy Rate at 2.25% for a fifth straight setting. 

The decision was not unexpected but there have been some rumblings about interest rate movement based on the latest GDP numbers, which put the country into a “technical” recession.  Many of those rumblings have been more political than economic. 

Bank of Canada Governor Tiff Macklem says the current situation does not meet the bar for a recession. 

“Based on the data we’ve seen to date, the economy is weak, but it is not clearly in recession,” Macklem said. “So far, we have not seen a significant, broad-based decline in economic activity.”  “Recession is not the word I would use.” 

Many independent economists agree that the forces which are holding back the Canadian economy – geopolitical uncertainty, trade tensions with the U.S. and the upcoming CUSMA review – cannot be readily mitigated using interest rate policy. 

The central bank finds itself in something of a dilemma.  Global geopolitical uncertainty, largely the war in Iran, has pushed up energy prices at an alarming rate.  If those increases start to fuel broader inflation the Bank has said rate hikes would have to be used. If trade troubles with the U.S. lead to further slowing of the Canadian economy rate cuts may have to be deployed. 

For the time being the Bank believes holding the Policy Rate is maintaining a balance between those conflicting forces.  The question now is, how long can the Bank maintain that balance.

- First National LP