The Bank of Canada announced today that it is holding the benchmark interest rate steady at 0.5%. The Bank is well aware of overly high house prices in Vancouver and Toronto and the risks to Canada's economy down the line as household debt grows.
The Canadian economy is contracting, not growing, “pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires," the Bank of Canada stated in July of 2016.
Unemployment rates in Canada are facing real threats, for example, in the Canadian auto sector as manufacturers look to the southern U.S. and Mexico for cheaper labour to set up facilities there. General Motors and its manufacturing operations could leave Canada altogether by 2019.
The bank also said in early July, 2016 it expects oil prices and the Canadian dollar to stay close to the $49 US for a barrel of crude (currently around $48 US. per barrel at September 7th, 2016), and 77 cents US for the Canadian dollar (currently at 77 cents US at September 7th, 2016). Low interest rates help keep the Canadian dollar low which in turn aids our export market but you must have a strong market to export to. Global markets and the American markets are not showing convincing growth either and the Americans have not raised their benchmark interest rate in 2016.
Interest rates will likely stay low in Canada well into 2020 and the benchmark interest rate can even be cut further if the Canadian economy continues to contract. There will be two more interest rate announcements this year: October 19th and December 7th.
The metro Vancouver market is adjusting to the new 15% property-transfer tax on foreign buyers and there are “preliminary signs of a possible moderation”. However, it is too early to tell what is going to happen there; investors continue to benefit from the low Canadian dollar when they convert their foreign currency into Canadian dollars.