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Bank of Canada holds interest rate steady, hints low rates could stick around

cbc.ca logo cbc.ca 2019-04-24 Pete Evans

Stephen Poloz wearing a suit and tie© Sean Kilpatrick/Canadian Press   The Bank of Canada kept its benchmark interest rate at 1.75 per cent on Wednesday.

Economists who monitor the bank weren't expecting any change to the rate, which the central bank meets to decide on every six weeks.

The bank tends to cut its rate when it wants to stimulate the economy, and hikes it when it wants to slow down an overheated one.

"Growth during the first half of 2019 is now expected to be slower than was anticipated in January," which is why the bank is keeping its rate low, to help stimulate the economy, it said.

In January, the bank was expecting Canada's economy to grow by 1.7 per cent this year. On Wednesday, it downgraded that lukewarm forecast to a chillier 1.2 per cent.

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Economists think that's a recipe for lower rates, which is why "an accommodative policy interest rate continues to be warranted," the bank said.

The central bank's rate impacts Canadians by influencing the rates that retail banks give to savers and borrowers on products like mortgages and savings accounts.

"Anyone with a variable rate mortgage should be pleased with this announcement because it diminishes the timing and likelihood of any increase to the prime rate," said James Laird, co-founder of Ratehub Inc. and president of mortgage brokerage CanWise Financial.

"This announcement also provides some pressure relief to those considering entering the housing market, as they should expect fixed rates to remain stable through the spring and summer homebuying season."

The latest figures from the Canadian Real Estate Association suggest average prices for homes are now falling across the country, on an annual basis, after years of outsized gains.

The bleak outlook caused the value of the Canadian dollar to lose half a cent, to trade below 74 cents US.

"The bank's pivot away from its hiking bias was sharper than expected today, leaving the Canadian dollar trading weaker and yields lower on the day," CIBC economist Royce Mendes said.

Trading in investments known as overnight index swaps imply there's now zero chance of a rate hike this year. Traders think there's about a 10 per cent chance of a cut as early as next month, and by September those odds jump to more than one in three.

Economist Stephen Brown with Capital Economics said "although the bank's tone might therefore become more positive at the next couple of meetings if the data come in better than officials expect, we still think the bank's next move will be to cut interest rates, in the second half of the year."

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