Perhaps the most pressing development for the Canadian economy, and therefore monetary policy, is the recent downturn in oil prices. Untangling the macroeconomic consequences of declining oil prices can be complex for an oil-producing country like Canada. However, the recent decline in oil prices will likely be felt strongest on growth through decreased output in the oil and gas industry and on inflation through lower prices for energy products, particularly gasoline. This suggests a delay in inflation returning to the Bank's 2 per cent target. We expect the Bank will begin slowly raising its overnight rate, starting late next year with perhaps a 25 basis point increase. That should translate to modestly higher mortgage rates in 2015.
Copyright BCREA - reprinted with permission