It is just a less than a day away – the Bank of Canada rate announcement. All eyes are set on the bank to see how they react to the latest market changes. Housing is allegedly crashing and inflation is low – how would these influence the banks decision on rate?
Answer to any question lies in the underlying fundamentals. Bank of Canada is mandated to ensure Canadian price stability. All other things are its side business, not the principle.
Inflation is one of the main drivers to price volatility. Gasoline price and many other costs influence it along with housing and construction material price. So, housing price is an indirect factor in one of the BoC’s many decision making flow-chart.
Although core-inflation is low but it is still within the target range of Bank of Canada. It attempts to keep the consumer price index within 1% to 3%. In past it went under 1% but it failed to make BoC move down.
Change in Outlook:
Not only the bank sets the rate on every scheduled dates but it also offers a future outlook about its expected actions in future.
Last few times the bank had a positive expectation about Canadian GDP, rate and inflation – which led us to believe that the bank will move north next time.
This time, inflation rate has changed the rule of the game but the external factors like personal debt and housing price are weighing heavy on the policy makers.
We expect to see the bank to lay a new future outlook and keep the rate as is this time.