Trade Deal Could Prompt Bank of Canada to Hold Key Rate Longer

A potential trade deal between the U.S. and Canada could lead to the Bank of Canada keeping its interest rate steady, impacting variable mortgage rates, while possibly making fixed-rate mortgages cheaper. The deal could boost consumer confidence and propel the economy, prompting the central bank to maintain its current rate of 2.75 per cent. However, economists warn that other economic factors, such as job growth and auto manufacturing concerns, are still at play and could influence the Bank of Canada's decisions.

Key Takeaways:

• A credible trade deal could prompt the Bank of Canada to keep its interest rate at 2.75 per cent, impacting variable mortgage rates.
• The deal could lead to an end to the trade war, boosting consumer confidence and potentially leading to a moderate rebound in the housing market.
• The Canada 5-year bond yield heavily influences how lenders set their long-term fixed rates, and a positive deal could lead to a decrease in yields.
• Economists warn that job growth and auto manufacturing concerns in Ontario could influence the Bank of Canada's decisions, potentially leading to further rate cuts.
• Current market expectations indicate that the Bank of Canada will only cut rates by another 25 basis points in 2025.

Statistics:

• The Bank of Canada's current interest rate is 2.75 per cent, which is within its stated neutral rate range of 2.25 to 3.25 per cent (Source: Globe and Mail).
• Current market expectations indicate that the Bank of Canada will only cut rates by another 25 basis points in 2025, down from a couple of months ago when markets expected another 75 basis points (Source: Globe and Mail).
• The Canada 5-year bond yield is heavily impacted by the U.S. and a decrease in yields depends on whether the U.S.-China trade spat is solved and on general confidence around U.S. fiscal policy (Source: Benjamin Tal, Canadian Imperial Bank of Commerce deputy chief economist).

Sources:

• Globe and Mail
• Robert Kavcic, senior economist at Bank of Montreal
• Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce
• Ron Butler, founder of Butler Mortgage in Toronto
• Shaun Cathcart, senior economist at the Canadian Real Estate Association