Tempered Rate Hike Forecasts for 2019

Floating-rate mortgage holders who had feared the Bank of Canada’s recent full-steam-ahead view towards continued rate hikes can take a breather—at least for now.

The central bank adopted a more dovish stance at last month’s rate hold announcement, which
confirmed a growing chorus of analysts who now expect the bank to take a slower pace on future rate hikes.

“Recent events aren’t likely to push the bank off of a tightening path, but they do remove any
urgency in getting to a neutral policy rate,” wrote Brian DePratto, a senior economist with TD Bank. “We no longer expect the Bank of Canada to hike its policy interest rate in January. Spring 2019 now appears to be the more likely timing, allowing for the bank to ensure that the growth narrative is back on track.”

Just a month and a half earlier, when the BOC hiked rates for the fifth time in 15 months to 1.75%, it made clear its intention to bring rates to a “neutral range” it says is needed to keep inflation in check while not hindering the economy. It estimated that range to be between 2.50% and 3.50%. The BOC reiterated this intention in December, but admitted it may now take longer to get there. “The appropriate pace of rate increases will depend on a number of factors,” the bank’s statement read. And again later, during a speech in Toronto, Governor Stephen Poloz reiterated that the pace of increases will be “decidedly data dependent.”

“We will continue to gauge the impact of higher interest rates on consumption and housing, and monitor global trade policy developments,” he said. “The persistence of the oil price shock, the evolution of business investment and our assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy.”