Mild Inflation Might Mean Lower Rate Hikes Come June
At its most recent regular monetary policy meeting, the Bank of Canada said that it would keep its historically low interest rate of 0.25 per cent, but the bank dropped any conditional commitment to keep the rate at the same level until July, making a June rate increase very likely.
While most are familiar that the central bank’s commitment was a strategy to pull the country out of the recession by encouraging spending and facilitating easy mortgage money, the policy was conditional on inflation not becoming an issue to economic growth.
However, it seems that inflation has been lower than the Bank of Canada has expected. After the last Bank of Canada monetary policy meeting, Statistics Canada said that its mortgage interest cost index (a measure of the change in the interest portion of payments on outstanding mortgage debt) dropped by 6 per cent in March, which followed a 5.8 per cent drop in February.
This could mean that the original speculation of a 50-basis-point move in June or July all of a sudden seems farfetched, although it is likely that we’ll still see some kind of rate increase.
