One big bank predicts rate hold until 2019

TD Bank forecasts the Bank of Canada overnight target rate will remain unchanged until 2019.

In its latest long-term economic forecast, the big bank predicts the Bank of Canada will hold its target at 0.5% until sometime in 2019, when it will be hiked to 1%. That will eventually give way to another interest rate increase in 2020, according to TD, when it will settle in at 1.25% to close out the year.

“Slower trend economic growth will also restrain the level of interest rates. With excess capacity expected to be absorbed slowly over the next several years, the Bank of Canada is likely to leave rates at their current 1.00% level until early 2019,” TD said in its forecast. “Even as rates move higher, they are likely to rise to just 1.25% by the end of the forecast horizon in 2020.”

Variable mortgage rates are closely tied to the overnight rate; fixed mortgage rates, on the other hand, are impacted by bond yields.

TD Predicts the five-year government bond yield will steadily increase starting next year. The five year yield closed out 2015 at 0.73% and it is expected to end 2016 at 0.7%. However, it will eventually see slight upticks each year.

The bank forecasts the five-year bond yield percentage will be 0.95% at the end of 2017, 1.30% at the end of 2018, 1.55% in 2019, and 1.80% in 2020.

Rates are dependent on a number of economic factors. This year, the economy is expected to grow by a mere 1.1% this year. However, it is expected to grow to 1.8% next year, driven, in large part, by rebuilding efforts due to the Alberta wildfires this year.
 

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COMMENTS

  • by Ted 2016-09-28 10:55:14 AM

    I predicted that in 2010!!!

  • by Aritzia 2016-10-14 6:22:58 PM

    I like this prediction. Because lower interest rate is good for Canadians who are needing some finance and it is good for all the legal citizens.

  • by Scott 2016-10-14 7:00:25 PM

    Low interest rates are not necessarily the best thing. First people get caught up in the frenzy and borrow, borrow, borrow, and borrow more. What happens when it's time to pay the debts? Second, the people who are retired and live off the interest from their savings, their income has plummeted to nil. They've had to draw on their principal to supplement the interest income and thus the remaining principal produces even less income. The end result is that they will deplete their savings and end up eating cat food.

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