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Lower interest rates by the end of 2019? This economist thinks Canadians should expect rates to take a dive

Dec 31, 2018|Source:

Not everyone is on the same page when it comes to where mortgage rates in Canada are headed.

Many observers expect the Bank of Canada will continue to increase the overnight rate, which influences the mortgage market.

Capital Economics, a London-based economic research consultancy, is not one of them.

“By contrast, we think that weak prospects for domestic demand will cause the Bank to remain on hold for most of 2019, before cutting rates at the tail end of next year,” reads a Canada Economic Outlook report.

Capital Economics suggests that lower oil prices and reduced housing investment will weigh on economic growth and encourage the central bank to walk back at least one of five rate hikes it’s made since July 2017.

Reducing rates in late-2019 rates should help Canada’s economy grow by 1.7 percent in 2020, Capital Economics estimates, an improvement over 2018’s estimated expansion of 1.5 percent.

Most recently, the bank increased the overnight rate by 25 basis points in October, bringing it to 1.75 percent. At the time, the Bank of Canada noted Canada’s housing market is “stabilizing,” a statement that one big bank recently questioned.

Still, Capital Economics’ expectation that the central bank will backpedal on monetary policy runs contrary to what most other observers are saying.

Just this month Benoit Durocher, a senior economist for Desjardins, said that Canada’s mounting household debt should lead the Bank of Canada to continue on its path of rate hikes.

“Nevertheless, the pace of monetary tightening is expected to remain gradual, as each key rate hike clearly takes several quarters to be fully reflected,” he writes in an Economic News report.


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