Banks call for interest rate hikes

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Banks and brokers rarely agree, but on this they may: Rick Waugh of the Bank of Nova Scotia suggests there is no housing bubble. However, he also advocates for higher interest rates.

“It’s not an underwriting or credit problem, it’s the fact that (low) interest rates do cause bubbles,” Waugh told reporters in Toronto following his speech at the Empire Club. “I do not think there is a bubble, but if you’re really concerned -- and you’re a policy maker -- you know what the right thing to do is? Raise interest rates.”

Waugh’s response came at a fitting time as the Bank of Canada announced Wednesday that it will hold the overnight interest rate at one per cent for another month.

The rate has held steady since September 2010 and banks are expecting the rate to remain steady until 2015.

“We still look for the first hike in early 2015, with some risk of a move late in 2014 if there are upside surprises to our forecast,” Avery Shenfeld of CIBC World Markets said in a note to investors.

Shenfield also stated the Bank of Canada expects the economy to improve enough in 2014 to warrant a hike in rates.

“This is a central bank that believes that growth will pick up in 2014 and that will eventually require higher rates, but which is happy to sit on the sidelines and wait for substantial proof such an acceleration is underway before raising rates.”

For his part, Douglas Porter, chief economist with BMO Capital Markets, believes the pending rate hikes will be contingent upon U.S. recovery.

“Officially, we are looking for the Bank to start raising rates in (the third quarter of) 2014, but that is contingent on our view that the U.S. economy will pick up meaningfully in coming quarters," he said in a note.

While the Bank of Canada seems content to wait for growth before hiking rates, the banks appear less patient.

  • Paolo Di Petta | on 2013-09-09 10:50:16 AM

    Funny, Scotiabank has spent the past 10 years baiting people into all sorts of "innovative" credit products, and now that they have all of the fish on the hook, they want to reel it in as quick and as hard they can.

    I'm not surprised. Time for brokers to start supporting the monolines - they're a better choice for both our industry and our clients.

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