With the impending decision on interest rates by the Bank of Canada today, various analysts argued that the signs point to a dim possibility of a rate cut.
The most important factor that could drive the decision is the fiery performance of Canada’s most active real estate markets, namely Toronto and Vancouver. Housing affordability has come to the fore as a main talking point in these markets, and benchmark prices spiked up by as much as 22 per cent in February.
“To the extent that the recent improvement in the value of the dollar will lead to a situation in which the bank will start considering a rate cut, the real estate factor will be a strong reason not to cut,” CIBC deputy chief economist Benjamin Tal told BNN News
“After all, by cutting again the bank is running the risk of fueling an already red-hot market. And we have reached a point in which the benefit of a rate cut is probably smaller that the potential damage of such a move,” Tal explained.
Moreover, low interest rates have fueled an increase in transaction volume in the mortgage sector, in turn stimulating greater housing demand in already-overloaded locales. Coupled with more and more foreign real estate investors attracted by generous exchange rates, industry players noted that any adjustment—should the BoC even consider it—won’t cool down the housing markets.
“While the Bank is concerned about rising household debt and potential financial stability issues, they have made it amply clear that they view monetary policy as the last line of defence on that front,” BMO chief economist Doug Porter observed.