The Bank of Canada is keeping its key interest rate unchanged at 0.5 per cent as it weighs the clashing forces of falling inflation and a surprising burst of economic growth.
But the central bank warned Wednesday that both factors may be temporary.
The torrid growth in the first quarter – now on a pace to hit 4.7 per cent annual rate – will be followed by “some moderation” in the April-to-June quarter, the bank said in a statement. In April, the bank had forecast 3.8 per cent GDP growth in the first quarter.
Wednesday’s decision marked the 15th consecutive time since July 2015 that the central bank has left its key rate unchanged. Most economists don’t expect the bank to begin raising rates until at least early 2018.
“The main message is that the bank now clearly sees the balance leaning more to the side of raising rates, rather than cutting them,” Bank of Montreal chief economist Douglas Porter said.
The bank also acknowledged the hot Ontario and B.C. housing markets, noting that recent government efforts to stop speculation and risky borrowing “have yet to have a substantial cooling effect.”
“The Bank of Canada sees an economic boom in all the wrong places,” CIBC economist Avery Shenfeld said in a research note.
– from Bank of Canada holds rates amid boom ‘in all the wrong places’, G&M, 24 May 2017
Three-quarters of Canadian mortgage holders would be unable to manage a modest increase in interest rates.
– El Ninja, on VREAA, citing this Vancouver Sun report
I’ll just leave this here:
An economic analysis released on May 4 by the Desjardins Group predicted that the central bank may increase its benchmark rate by 0.5 percent per year starting in 2019, bringing it to about 2.5 percent by 2021. According to the Desjardins paper, that could mean a two-percent increase in variable and five-year fixed mortgages.
“It will make it even more unaffordable to buy a property,” Kadi said about the prospect of higher interest rates.”
– BlaMmO, on VREAA, citing this Georgia Straight article
Cheap money plus good story leads to housing bubbles.
Looks great on the way up, everybody loves it, especially the banks and the politicians. And owners, RE ‘investors’, Home Depot, kids with new trucks drywalling, [any poor value local item dependent on wealth effects].
‘Wealth’ is created out of thin air with every mortgage created. (Free money!)
Bonus extra level of juice if you’re importing some of the downpayments.
However, all pretty much a ponzi, and when you run out of air, what then?
The whole process in reverse really, really sucks.