The central bank wants to prevent a scenario that could inflame the housing market, economist says
Through its latest policy rate decision, the Bank of Canada has signalled that it wants to prevent a bond resurgence that could inflame market activity, according to Dominion Lending Centres (DLC) chief economist Sherry Cooper.
“The BoC is keeping its hawkish bias to avoid a bond rally that could trigger another boost in the housing market, similar to what we saw last April,” Cooper said.
“The government bond yield is hovering just under 5%, having breached that level recently with the release of robust US economic data.”
Cooper noted that given recent events, the central bank will have to be extra careful in its next rate announcements.
“The Bank of Canada, though independent, is coming under increasing political pressure,” Cooper said. “In an unusual move, the premiers of both BC and Ontario have publicly called for a cessation of rate hikes.”
The BoC is slated to make two more rate decisions before the end of 2023, with the next one due October 25 after two releases of jobs, inflation, and retail numbers along with GDP data for July and a GDP estimate for August.
“Many are expecting another rate hike in one of those meetings,” Cooper said. “The odds of this are less than even, given the downward momentum in the economy.”
Ontario Premier Doug Ford expressed concern about the impact of recent rate increases on Ontario's families and businesses, citing ten interest rate hikes in the past 18 months.
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 5, 2023
Full article: https://t.co/XzWpiHa5vC#mortgageindustry #ratehike #interestrates
GDP showing clear signs of deceleration
Canadian GDP slowed at an annualized pace of 0.2% in the second quarter of the year, which might stand as proof of the effectiveness of the central bank’s rate-hike campaign.
Dawn Desjardins, chief economist at Deloitte Canada, told BNN Bloomberg that the slowdown “does give the Bank of Canada room to just step back.”
“We are seeing the Bank of Canada getting some traction here with those rate hikes,” Desjardins said, adding that the economy has seen markedly lower residential investment volumes during the quarter.
“Most of us were anticipating that we’d see positive on the housing situation, but that was weaker,” she said.
