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Andre Persaud
Mortgage Agent, Lic. #M14000772
SAFEBRIDGE Financial Group
Broker License #10524
The Bank of Canada held its benchmark interest rate steady at 2.25% yesterday which means no change in rate for variable mortgage or HELOC holders. Fixed rates remain unchanged by the announcement as well. This is the 6th consecutive pause by the BoC.
My take...
Our core inflation data, which strips out energy and food prices, is still hovering at the Bank’s 2% target. In addition, our latest inflation data confirmed that about one-third of the prices that comprise our Consumer Price Index are rising by more than 3%, which is a little below the long-term average.
When the US/Iran cease-fire was announced, oil prices quickly retraced 95% of their previous war-related run-up, to a degree that surprised many market watchers. They subsequently rebounded off those recent lows when hostilities resumed, but we are still nowhere near the previous peak.
The second key risk to the Canadian economy, and the one the Bank expects to be longer-lasting, is US trade uncertainty.
The Trump administration’s decision not to renew the CUSMA was not unexpected, but it further entrenches trade uncertainty as a long-term headwind for our economy.
The US decision will also mean that CUSMA will now be subject to annual reviews. That will make Canadian and foreign businesses less likely to invest in capacity enhancement and expansion in Canada, and as a by-product, will likely further weaken our productivity. Over the longer term, it will increase both trade friction and costs, and it will also likely weaken the Canadian dollar.
Looking forward...
The BoC continues to look through our recent inflation spike because it has thus far been limited to surging energy prices. If the US/Iran war drags on and its associated inflationary impacts become broader and more entrenched, there may come a time when the Bank will be compelled to tighten. For now, my assessment is that we won’t get to that point, and I am encouraged by the rapid drop in energy prices after the US/Iran sixty-day cease-fire was announced (and despite some retracement since).
Simply put, trade uncertainty remains the greater long-term threat to our economy. The US decision not to extend CUSMA ensures that uncertainty will remain a headwind for our economy for the foreseeable future. At some point I think the BoC will be compelled to lower its policy rate to a stimulative level (of 2% or less) in response.
Time will tell - the next BoC meeting is September 2nd.
Andre Persaud
Mortgage Agent, Lic. #M14000772
SAFEBRIDGE Financial Group
Broker License #10524
The Bank of Canada held its benchmark interest rate steady at 2.25% yesterday which means no change in rate for variable mortgage or HELOC holders. Fixed rates remain unchanged by the announcement as well. This is the 6th consecutive pause by the BoC.
My take...
Our core inflation data, which strips out energy and food prices, is still hovering at the Bank’s 2% target. In addition, our latest inflation data confirmed that about one-third of the prices that comprise our Consumer Price Index are rising by more than 3%, which is a little below the long-term average.
When the US/Iran cease-fire was announced, oil prices quickly retraced 95% of their previous war-related run-up, to a degree that surprised many market watchers. They subsequently rebounded off those recent lows when hostilities resumed, but we are still nowhere near the previous peak.
The second key risk to the Canadian economy, and the one the Bank expects to be longer-lasting, is US trade uncertainty.
The Trump administration’s decision not to renew the CUSMA was not unexpected, but it further entrenches trade uncertainty as a long-term headwind for our economy.
The US decision will also mean that CUSMA will now be subject to annual reviews. That will make Canadian and foreign businesses less likely to invest in capacity enhancement and expansion in Canada, and as a by-product, will likely further weaken our productivity. Over the longer term, it will increase both trade friction and costs, and it will also likely weaken the Canadian dollar.
Looking forward...
The BoC continues to look through our recent inflation spike because it has thus far been limited to surging energy prices. If the US/Iran war drags on and its associated inflationary impacts become broader and more entrenched, there may come a time when the Bank will be compelled to tighten. For now, my assessment is that we won’t get to that point, and I am encouraged by the rapid drop in energy prices after the US/Iran sixty-day cease-fire was announced (and despite some retracement since).
Simply put, trade uncertainty remains the greater long-term threat to our economy. The US decision not to extend CUSMA ensures that uncertainty will remain a headwind for our economy for the foreseeable future. At some point I think the BoC will be compelled to lower its policy rate to a stimulative level (of 2% or less) in response.
Time will tell - the next BoC meeting is September 2nd.
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