The Bank of Canada's future steps will have a major influence on price growth, observers say
While the housing market’s recovery is a welcome development, industry observers have warned of potential inflation growth later this year amid the elevated-rate environment.
After an unprecedented rate-hiking campaign over much of 2022, the Bank of Canada has kept its policy rate frozen at 4.5% in its two latest meetings.
However, Stephen Brown of Capital Economics said that the central bank “is unlikely to be in a rush to cut interest rates if house prices are roaring higher again.”
“Following the renewed concerns about regional US banks [recently], markets are again pricing in interest rate cuts from the BoC later this year,” Brown said. “From a domestic perspective, however, the strength of the local real estate board data in April and resilience of the labour market suggests that the Bank is unlikely to contemplate loosening policy any time soon.”
Fortunately, while higher borrowing costs have rightfully raised concerns, financial stress on home buyers has been much less than anticipated.
“One of the reasons the market has been able to stabilize so quickly is because there’s just no forced selling,” said Robert Kavcic of BMO Capital Markets.
“The BoC at the end of the day is probably not going to be too thrilled if the housing market really starts to ramp up,” Kavcic said, as reported by Reuters. “From a shelter cost perspective, you are going to start to see more upward push on inflation in the second half of this year.”
