BoC sends mixed messages to brokers

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The Bank of Canada surprised absolutely no one in maintaining its overnight rate at 1% Tuesday, although it now suggests there may be little choice but to increase it in order to curb rising household debt.

Read" title="Read More" />“Despite the lower forecast for household spending,” said the Bank in its Monetary Policy Report released Wednesday, “the bank continues to expect further increases in the household debt-to-income ratio in coming quarters.”

Ostensibly that's bad news for homebuyers and their brokers, who can expect to see the cost of variable-rate mortgages grow, with an eventual impact on fixed rate product.

Analysts are interpreting the banks comments to mean the threat of a higher overnight rate remains on the table, despite the mortgage rule changes brought in earlier this month and meant to cool the housing markets in Toronto and Vancouver.

That intervention was enough to keep the bank from upping the rate at Tuesday’s review, but for how much longer, ask analysts.

“The Bank has decided to maintain the target for the overnight rate at 1 per cent,” reads the rate update. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term.

“The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”

Still, it is now warning households to brace for an increase in their debt load in the coming months – an indication, say economists, that the bank may move to increase rates within the next few months.

There remain signs of  "overbuilding" in the housing market, said the Central Bank Wednesday.

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