Bank of Canada rate cut<\/a> is often like pressing the accelerator down on the country\u2019s housing market. And, if the market is already hot, it adds fuel to the fire. Conversely, a rate hike can have a cooling effect on the market.<\/p>\nThe consensus is that the odds of a rate cut next week are low considering the strength of the Canadian labour market. <\/p>\n
\u201cMoreover, it is clear that the Bank does not want to be responsible for triggering another big run-up in house prices,\u201d writes Capital Economics\u2019 Stephen Brown, who is clearly well-versed in parsing Bank of Canada announcements. <\/p>\n
With the Canadian housing market in recovery mode and busy posting consecutive positive monthly results since the winter, Brown believes the central bank will need to see more evidence of economic weakness before it cuts rates. <\/p>\n
That sounds like good news, right? Where is this potential economic weakness that has the Bank of Canada so worried coming from?<\/p>\n
First, and most obvious, is global economic uncertainty stemming from the ongoing and worsening trade war between the US and China. Add to that the protracted Brexit negotiations that look to be coming to a head soon and the tense situation in the Persian Gulf and you have a recipe for an uncertain and potentially volatile global economic backdrop. <\/p>\n
All that is to say, the Bank of Canada is paying close attention and will likely cut rates to ease some of that economic uncertainty for Canadian consumers, businesses and other institutions.<\/p>\n
Brown and his team at Capital Economics believe there\u2019s a rate cut on the horizon in December, followed by a second cut in early 2020. These two projected cuts would bring the Bank of Canada\u2019s overnight rate, which influences the mortgage market, down from 1.75 percent to 1.25 percent. <\/p>\n
If the Capital Economics prediction plays out, it would be the lowest the Bank of Canada\u2019s overnight rate has sunk since summer 2018. <\/p>\n
While Brown is confident in his December rate cut prediction, he does hedge his bets a little bit.<\/p>\n
\u201c[W]e would stress that the chance of a rate cut would diminish in the event of a positive outcome from the ongoing talks between the US and China over trade and other matters, which will culminate at the APEC meetings next month,\u201d he writes.<\/p>\n
The ability to translate central banker-speak only gets you so far when it comes to predicting the future.<\/p>\n
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