If the banks aren’t prepared to put the brakes on rising mortgage debt, the Bank of Canada may soon be, hinting that it could raise its key overnight rate as soon as this summer.
“The heightened uncertainty around the global economic outlook has decreased in the weeks since the Bank released its January Monetary Policy Report (MPR),” reads Thursday’s announcement maintaining the Central Bank’s benchmark rate at 1 per cent. “With tentative signs of stabilization in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased.”
For analysts, that translates into the strongest indication in more than a year that the bank may have enough room sometime this year to raise the interest rate it charges banks. The knock-on effect would be to raise interest rates for borrowers.
BMO’s move this week to re-introduce its 2.99 per cent rate on a five-year fixed has had the exact opposite effect, although that rate isn’t directly tied to the BoC’s overnight.
Still, bank’s moves is expected to kick start another mortgage rate war and likely exacerbate growing concerns about rising levels of consumer debt.
It also means the central bank may move more quickly to raise its benchmark rate in order to slow the pace.
That’s only if the government itself doesn’t intervene first, with a brokers joining the growing number of economists forecasting new mortgage rules as part of the spring budget announcement.
That’s not what most brokers want to see.
“We want the government to be aware of the economic and job contribution that housing and the real estate industry provide,” said CAAMP CEO Jim Murphy last month, coming off a second visit to Parliament Hill. ”CAAMP, based on current data and research, sees no need to further tighten or restrict access to residential mortgages at this time.”
CAAMP has also crafted a new industry report documenting what could well be at stake with further tightening of the country’s mortgage rules -- detailing the economic impact of the housing and mortgage industry.