A “record” portion of the Canadian economy is now reliant on housing activity, according to the Macquarie Group.
In its latest statement, the financial services group said that this development will apply a downward pressure on interest rate growth, keeping it at record lows for a longer time than was previously estimated.
“Any potential BoC rate hike cycle will be constrained because negative feedback effects on the economic outlook will be more substantial than in previous cycles,” analyst David Doyle wrote in a note to clients, as quoted by the Financial Post
Macquarie also revised its previous forecast of a BoC rate hike in Q2 2018. Now, any potential hike will not take place until Q2 2019, the group said.
Spreads between Canadian and U.S. bonds are also expected to widen, taking into account differing monetary policies.
“We lower our equilibrium forecast for the Government of Canada 10-year bond yield for the current expansion to 1.5% (prev. 2.0%, cons. 2.7%), a level we believe will be reached at end-18,” Doyle stated in the same client note. “This is based on an expectation for a widening spread with the US 10-year Treasury yield (our end-18 forecast for this remains at 2.7%).”
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