The Bank of Canada has once again lowered their benchmark interest rate, this time to a low 0.5 per cent. It is the second time this year the Bank of Canada has cut interest rates in hopes to boost a weakening economy.
“The bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection,” the bank said in a release early Wednesday morning, reasoning the cut from January’s 0.75 per cent rate. Before January, the interest rate had stood steadily at one per cent since 2010.
“Global growth faltered in early 2015, principally in the United States and China. Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity.”
Despite a global rebound, Canada will see stress due to lack of investment in the energy sector, and “weaker-than-expected exports of non-energy commodities and non-commodities.”
But, the bank does predict things will improve in the third and fourth quarters of 2015, and Canada’s GDP growth is set to move up one per cent this year. All signs point to a fully robust economy and two per cent inflation rate by the first half of 2017.
Meanwhile, the decrease in interest rates could have negative effects for those looking to enter Vancouver’s housing market. While mortgages will theoretically become cheaper, this could add further demand to the market and increase the cost of housing in the region.
Business economist Thomas Davidoff, an associate professor at UBC’s Sauder School of Business says the interest rate cut is largely a response to the oil market slump and that markets in Vancouver and Toronto don’t necessarily need the extra boost.
“The cut should help first-time buyers, as they can more easily afford a lower rate on a mortgage, but on the whole it will push up prices – some would say to some uncomfortable highs.”
But despite the clear economics at play, there are further factors that make the housing outlook a foggy one. Davidoff argues that housing may become more expensive, but then again, maybe not.
“There are three competing factors right now: the economic downturn, the interest rate cut, and the Chinese economy, which could especially impact Vancouver. From a researcher’s perspective, it’s actually sort of a shame we’re seeing these happen at the same time, as it will be difficult to know what’s causing what changes to housing markets,” he says.
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