BoC holds rate steady
General Kaveh Seyedsagha 11 Jun
General Kaveh Seyedsagha 11 Jun
General Kaveh Seyedsagha 3 Jun
Canada’s gross domestic product posted better than expected growth in the first three months of this year. GDP, which is the total value of all goods and services produced by the economy, increased by an annualized rate of 2.2% in the first quarter, up from 1.7% for the same period a year ago. Analysts had been forecasting a 1.7% increase as First National reports.
Q1 GDP was up 0.5% compared to Q4 of 2024.
The figures from Statistics Canada suggest the economy is holding its own, but many experts are warning that the numbers may be misleading. They say businesses and industries likely boosted production in an effort to “front run” wide-ranging tariffs threatened by the United States. The U.S. president announced sweeping, global tariffs on April 2, which he dubbed “Liberation Day”.
Now that the penalties are in place, production is expected to decline and higher prices caused by the tariffs will likely supress consumption. GDP growth for the rest of the year is expected to slow and could even turn negative, raising the possibility of a technical recession.
For the time being, though, first quarter GDP growth, an increase in unemployment and a bump in inflation give the Bank of Canada all the reasons it needs to hold off on any further interest rate moves. Canadians hoping to see a cut may have to wait until later in the year. Many market watchers are forecasting at least two more rate cuts in 2025.
The next interest rate setting is scheduled for June 4.
General Kaveh Seyedsagha 27 May
General Kaveh Seyedsagha 28 Mar
High hopes for a brisk spring housing market are being tempered by the trade fight between Canada and the United States.
The Canadian Real Estate Association is showing a sharp drop in February sales of existing homes on both a month-over-month and year-over-year basis. Resales fell 9.8% compared to January and 10.4% compared to February of 2024. About three-quarters of markets across the country experienced declines. Larger centres, like Ontario’s Golden Horseshoe, reported the most significant drops as First National bank reports.
CREA says the numbers show buyers are retreating from the market because of the economic uncertainty caused by U.S. tariffs, and talk of American annexation of Canada.
“The moment tariffs were first announced on January 20, a gap opened between home sales recorded this year and last. This trend continued to widen throughout February, leading to a significant, but hardly surprising, drop in monthly activity,” said CREA’s Senior Economist, Shaun Cathcart.
New listings also took a nasty tumble in February, falling 12.7% from January, erasing the gains than came in a surprise surge for the month.
The slowdown in sales did not have a big impact on prices. CREA’s National Composite Home Price Index dipped 0.8% from January and was down 1.0% compared to a year earlier.
The national average sale price of a home dropped 3.3% to $668,000, year-over-year.
General Kaveh Seyedsagha 11 Mar
The on-again, off-again tariff torment from the United States is reinforcing opinions about which direction the Bank of Canada’s interest rate policy is going … down.
Market watchers say there is a 75% to 85% chance of another quarter-point drop this week. That would bring the central bank’s policy rate to 2.75%. It is more welcome news for anyone in the market for a mortgage or a renewal as First National bank reports.
Most of Canada’s recent economic news has been good. Gross Domestic Product was strong in the fourth quarter, with a 2.6% annualized increase in the value of all goods and services produced by the economy. Expectations had been for a 1.8% increase. Third quarter figures were revised upwards from 1.0% to 2.2%. GDP-per-capita – which is a measure of how well individual Canadians are doing – rose for just the second time in the past seven quarters, rising 0.02%.
Jobs have also been doing well with 211,000 positions created from November to January. Some 76,000 jobs were added in January alone. The unemployment rate is down to 6.6%.
But a corner was turned in February and a sign of weakness has appeared. Job creation collapsed to just 1,100 new positions, well below the 20,000 that had been forecast. Many see it as an early indicator of how the “management-by-mayhem” coming out of the United States is already weighing on Canada’s economy.Analysts say it gives the Bank of Canada plenty of latitude to keep dropping rates.
General Kaveh Seyedsagha 26 Feb
The Canadian economy is facing a permanent “negative structural change” if threatened U.S. tariffs become a long-term reality as per First National Bank reports.
Bank of Canada Governor Tiff Macklem issued the warning during a recent speech to business groups in Mississauga. He also cautioned that an all-out trade war with the Americans would put the central bank in the position of fighting contradictory problems with the one, main weapon it has: interest rate (monetary) policy.
The Bank would be left trying to limit tariff-fuelled inflation by keeping interest rates high while, at the same time, trying to stimulate economic growth, which is usually done by lowering interest rates.
The BoC estimates that sweeping, 25% U.S. tariffs on Canadian goods could leave Canada in a serious recession with virtually zero economic growth over the next two years.
While Canada’s exports – mainly energy, autos, aluminium and steel – would take major hits, new home construction here would also suffer significant shocks.
Retaliatory Canadian tariffs on everything from appliances to plumbing fixtures to plastic building materials would drive up prices for builders and those costs would be passed on to buyers. This would also be the case for the home improvement and renovation sector in the resale home market.
Broad economic uncertainty created by tariff threats, and the resulting fears about jobs, inflation and interest rates could have wide ranging negative impacts on the housing industry, which relies on confidence and stability to generate market activity.
General Kaveh Seyedsagha 14 Jan
The first significant economic report of the new year landed on Friday and it is raising speculation about the Bank of Canada’s next rate move.
Statistics Canada’s December employment numbers show nearly 91,000 new jobs were added for the month, nearly four times more than had been expected. Most of the jobs (56,000) are full time as the First National reports.
The hiring boom dropped the unemployment rate to 6.7%, down from 6.8% in November. The employment rate, which is the percentage of the population that is working, actually increased for the first time in two years.
The news is broadly seen as good, showing the Canadian economy is resilient and doing well as we continue to climb down from high inflation and other lingering effects of the pandemic.
Some market watchers are now suggesting the Bank of Canada may not need to make another rate cut at its next setting on January 29th. They also point to the weak Canadian dollar, and signs that the U.S. central bank will slow its rate cutting plans, as indicators the BoC will pause.
However, a number of prominent Canadian economists point out that StatsCan’s employment numbers have a history of volatility, which make it difficult to base forecasts on a single report. They also say the lingering threat of U.S. tariffs is weighing on business and consumer confidence, and lower interest rates could help counter that.
General Kaveh Seyedsagha 13 Jan
With the arrival of the new year comes a new round of predictions about what is ahead for interest rates, mortgages and real estate.
Generally, the mood among realtors is up-beat as First National report mentions. The Canadian Real Estate Association has tempered its forecasts but continues to forecast increases for sales and home prices through 2025. CREA expects an active spring market. It is predicting a 6.6% increase in sales, with nearly half-a-million properties changing hands this year, and a 4.4% increase in the national average price of a home, to $713,000.
Canada’s big realtors see a stabilizing but improving market ahead.
Royal LePage is calling for its aggregate home price to rise 6.0%, year-over-year, to nearly $857,000 by the end of 2025.
Re/Max is looking forward to a 25% increase in sales with a 5.0%, year-over-year, increase in pricing.
Falling interest rates get most of the credit for fueling a market resurgence. Five consecutive cuts by the Bank of Canada, starting back in June, dropped the trend-setting policy rate from 5.0% to 3.25%. But the Bank has signalled more cuts are coming and that might have some buyers holding back and waiting for even cheaper financing costs.
The lower rates do not offer the same benefits for homeowners who are renewing their mortgages. Even with the central bank’s cuts they are still facing significant increases over the rock bottom rates they had.
General Kaveh Seyedsagha 10 Dec
The latest employment numbers have more forecasters calling for a 50 basis-point (0.50%) cut in the Bank of Canada’s benchmark Policy Rate on December 11. It will be the Bank’s final rate setting for this year as First National Bank reports.
The November unemployment rate rose to 6.8%, up from 6.5% in October, despite the addition of 51,000 new jobs. The increase in the jobless rate is the result of more people actively looking for work. The, so called, participation rate has been pushed up by high levels of immigration.
High interest rates that were designed to combat inflation have led to a slowdown in hiring. Now that inflation is back inside the BoC’s target range the Bank has been cutting rates in an effort to keep the economy moving. Back in October the Bank tried to accelerate that process with a 50 basis-point rate cut. Prior to that the Bank had been trimming its Policy Rate in 25 basis-point increments.
The central bank is also closely monitoring Gross Domestic Product. GDP continues to grow, but not as quickly as the Bank has forecast. It increased just 1.0% in the third quarter. Expectations had been for a 1.5% increase. Fourth quarter numbers could also be disappointing due to the nation-wide postal strike.
Another factor that will likely be part of the Bank’s calculations is the value of the Canadian dollar. The Loonie is currently valued at about 70 cents U.S., which is a 4 and-a-half year low. The Bank may be reluctant to see our dollar dip even further, which is a common reaction when Canada’s interest rates fall below those in the U.S.
General Kaveh Seyedsagha 26 Nov
The October inflation report caused a minor commotion but it does not appear to have upset things enough to see the Bank of Canada change course as per First National’s Bank report.
Statistics Canada reports headline inflation, also known as the Consumer Price Index, rose to 2.0%, on a year-over-year basis, up from 1.6% in September. An increase was expected, but the October bump was bigger than forecast. Still, inflation remains in the central bank’s sweet spot.
It is now widely expected that the Bank of Canada’s next interest rate setting, in December, will see a quarter point cut, rather than another half point reduction.
Even with less aggressive action by the BoC there is evidence that the rate cuts are working.
Two key drivers of inflation – mortgage interest costs and rent inflation – were down in October and in September, retail sales rose for the fourth straight month, increasing by 0.4% over August. Statistics Canada’s flash forecast for October is predicting a 0.7% increase. That would boost third-quarter retail sales by nearly a full percentage point, reversing a significant contraction in the first half of this year.
A further spending increase can be expected if the prime minister’s proposed “GST Holiday” and $250-per-worker stimulus plan is implemented. Some market watchers are concerned the scheme could be inflationary. They say that could keep the BoC on a slower, rate cutting schedule