With the Bank of Canada’s latest rate cut now well established attention is turning to what happens next.
Along with this month’s rate cut the Bank of Canada lowered its economic growth forecasts. It does not expect to see the economy return to full capacity until early 2017, indicating it is unlikely there will be a rate increase before then.
The United States will influence what happens next. The U.S. Fed has indicated it hopes to raise interest rates in the fall. An increase there, is a de facto reduction here, making it unnecessary for a further BoC cut in September, as some have suggested.
Canada’s big banks did trim their variable rates but, as with the January cut, not by the full 25 bps made by the central bank. Of course we are still in prime real estate season and the banks may be leaving themselves some room for further discounts once things slow down again.
Fixed rates will likely move once the effects of the reduced overnight rate make their way to bond yields