Canadian debt levels no cause for alarm, economist says
Her comments below are right on.
Globe and Mail Blog
Posted on Monday, September 19, 2011 6:40PM EDT
A report that showed Canadian household debt levels have topped U.S. ones should be taken with a grain of salt, according to one economist.
In a note released Monday, National Bank of Canada’s Matthieu Arseneau says the Canadian government’s indicator on household debt “does not lend itself well to such an international comparison owing to the considerable differences between the social safety nets of the two countries.”
At first glance, personal disposable income levels appear much lower in Canada than in the United States. Mr. Arseneau attributes that to higher tax levels in Canada that are used, in part, to fund our national health care system.
Americans, meanwhile, must allocate nearly 20 per cent of their personal disposable income to paying for health care, he says. “If we adjust for this factor, the debt ratio of U.S. households exceeds that of their Canadian counterparts by 12 per cent.”
A report released last week showed that Canadian household debt rose to a record high in the second quarter, surpassing levels seen in the United States since the start of the year.
Statistics Canada said last Tuesday that the ratio of household credit-market debt – which includes mortgages, consumer credit and loans – to personal disposable income climbed to 149 per cent from 147 per cent in the first quarter. That’s the highest level since Statscan started gathering figures in this category in 1990.
The government agency attributed the growing debt to higher mortgages and increased consumer credit borrowing.
With interest rates slated to remain at low levels for the foreseeable future, Canadians are taking on both mortgages and consumer loans. Policy makers have expressed concerns about high household debt levels and warned against what could happen if rates were to rise.
In his note, Mr. Arseneau also noted that the Statscan ratio represents only one facet of the financial health of households.
“If we consider the ratio of debt to net worth, which is still markedly higher in the United States, we understand why household deleveraging is ongoing south of the border whereas nothing of the sort is happening in Canada,” he said.
Mr. Arseneau concluded his note by warning of the need to be vigilant, because excessive household debt levels “could represent a risk factor for Canada’s economic stability down the road.”
Calgary MLS sales jump 22% in August
CALGARY — MLS sales in Calgary rose by 22.1 per cent in August compared with a year ago — a greater year-over-year rate of growth than the rest of the country.
The Canadian Real Estate Association said Thursday that Calgary recorded 1,907 MLS sales for all residential properties during the month for an average price of $394,251, up 2.2 per cent from last year.
New listings in Calgary rose by 11.7 per cent in August to 3,819 and the sales as a percentage of new listings jumped by 4.2 per cent to 49.9 per cent.
In Canada, sales of 39,542 were 15.8 per cent higher than August 2010 and the average sale price of $349,916 was up 7.7 per cent.
New listings in Canada rose by 13.4 per cent to 73,125 and the sales as a percentage of new listings jumped by 1.1 per cent to 54.1 per cent.
“The housing market in Canada remained on a firm footing in August when compared to volatile financial markets,” said Gary Morse, president of CREA. “Through their actions, homebuyers are showing that they remain confident about the stability of the Canadian housing market, and recognize that the continuation of low interest rates represents an excellent opportunity to buy their first home or trade up.”
Gregory Klump, CREA’s chief economist, said economic and financial market headwinds outside Canada are keeping interest rates lower for longer.
“Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved,” he said. “In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”
© Copyright (c) The Calgary Herald
Calgary house prices to get burst of energy
House prices to get burst of energy
Where oil goes, so goes Calgary.
As much as we like to say the city isn’t as dependent on black gold for its health and prosperity, the fact is, we are.
With oil prices regaining strength and with hiring happening in the oilfields, the economy is beginning to strengthen — and it’s pulling consumer confidence along with it.
A real estate axiom says that when the economy is good, the pace of home sales at the higher end of the market increases.
People in those income brackets aren’t likely to buy if there is an indication the economy is headed south.
“That’s probably true,” says Norb Park, managing broker with Sotheby’s International Realty Canada. “The business-minded are probably saying the economy is heading in the right direction, the oilpatch is in good shape, so this isn’t a bad time to deal.”
Resale housing statistics from the Calgary Real Estate Board tend to agree.
From the start of the year to the end of August, 948 homes priced at $700,000 and more changed hands, up from 779 for the same eight-month period in 2010.
In August, sales in that price range totalled 104 compared with 67 for the same month a year ago.
“There’s a mindset that when oil is doing well, then the economy must be good,” says Park. “That, in turn, increases consumer optimism — and right now, people are feeling positive.”
But not all of us can afford homes that expensive.
Matter of fact, nearly 50 per cent of single-family homes sold this year and last were priced between $300,000 and $450,000.
“With Calgary’s energy sector slated to grow, it is expected to lift the city’s employment, income and in-migration — and in turn help contribute to growth in the resale market,” says Sano Stante, president of the Calgary Real Estate Board. In-migration refers to the migration of people to the city.
“We expect price growth to improve as we approach the end of 2011 and move into 2012,” he says, adding the market is seeing a boost in sales at both ends of the market.
“Improving economic conditions, coupled with affordability and price stability, has given Calgary a boost in buyers for upper-end homes and entry-level condos,” he says.
CREB also reports the average price for single-family resale homes reached $468,051 by the end of August, a one-per-cent increase compared to last year.
Taking a page from the RBC affordability reports, Stante says: “When looking at Canada’s major cities, Calgary is one of the most affordable regions for homeownership in the country. Buyers are benefiting from improved selection at all price ranges in the market.”
The single-family home market had 1,106 sales in August, an increase of 28 per cent when compared to the same month last year — which, by the way, was the lowest for August since 1994.
Sales of 9,485 for the start of the year to the end of August are 10-per-cent higher than the same period last year.
Condo sales totalled 468 units in August 2011, with a year-to-date total of 3,885 — similar to levels recorded in the first eight months of 2010.
PACE QUICKENING
Just like the sale of used single-family homes, the pace is also quickening for resale condos.
As of the end of August, 834 units sold at prices below $200,000, well up from 596 for the same eight-month period in 2010, says the Calgary Real Estate Board. But condo prices continue to remain one per cent lower than last year’s figures with an average price of $288,167 for January to August.
© Copyright (c) The Calgary Herald
Housing Market in Canada is Stable
Housing Market Still Stable: CREA
- Friday, 16 September 2011
According to new data released from the Canadian Real Estate Association, housing activity in Canada remained stable in the month of August, which represents the second month in a row.
“The housing market in Canada remained on a firm footing in August when compared to volatile financial markets,” said Gary Morse, CREA President. “Through their actions, homebuyers are showing that they remain confident about the stability of the Canadian housing market, and recognize that the continuation of low interest rates represents an excellent opportunity to buy their first home or trade up.”
Looking at specific metropolitan centres, Toronto and Ottawa registered a monthly increase in activity, compared with Calgary, Montreal and Vancouver registering slight declines. Year-over-year, actual sales activity nationally rose by 15.8%.
Representing the first time that year-to-date activity has surpassed 2010 levels, 324,030 homes have traded hands, which is also in line with the ten year average.
70% of all local markets were solidly in balanced territory for the month of August, which represents the largest percentage on record. Only 12 markets reported being in buyer’s market position.
The national sales-to-new listings ratio, a measure of market balance, stood at 51.6 per cent in August, unchanged compared to July. The actual (not seasonally adjusted) national average price for homes registered in at $349,916, which marks a 7.7 % increase year-over-year, which was also the lowest price point seen in 2010.
“Once again, economic and financial market headwinds outside Canada are keeping interest rates lower for longer,” said Gregory Klump, CREA’s Chief Economist. “Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved. In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”
Centres that had been hotbeds for both sales and for price appreciation, that had been having the effect of skewing national prices upwards like Toronto and Vancouver appear to have moderated somewhat, pulling price levels more in line with averages.
Alberta economic growth among Canada’s leaders
Alberta economic growth among Canada’s leaders: 3.7% hike forecast for this year
CALGARY — Alberta is positioned as one of Canada’s provincial leaders in growth, according to the latest RBC Economics Provincial Outlook report released Monday.
The provincial economy is set to grow at a rate of 3.7 per cent in 2011 and 3.9 per cent in 2012, said RBC. Both years Alberta will be second overall in the country behind nation-leading Saskatchewan’s growth rates of 4.3 per cent this year and 4.1 per cent next year.
Continued uncertainty in the global economy and volatility in the financial market forced RBC to downgrade its economic outlook for Canada. It is now predicting 2.4 per cent growth in 2011 and 2.5 per cent growth in 2012 for the country, down from 3.2 per cent this year and 3.1 per cent in 2012 it had forecast in June.
In June, the financial institution predicted economic growth of 4.3 per cent for Alberta this year and 3.8 per cent in 2012.
Increased production at major oilsands projects in Alberta in the past two years has rapidly boosted crude oil output and signs of further acceleration emerged earlier this year, said the report, but wildfires then forced widespread shut-downs in late-May and caused oil production to plummet in the weeks that followed.
“We expect that the negative economic impact from the wildfires will be short-lived, as most facilities were able to resume operations fairly quickly after the fires subsided,” said Craig Wright, senior vice-president and chief economist for RBC. “The economic loss associated with this disaster should be largely recovered in the second half of 2011.”
Solid investment in Alberta’s energy-related sector is the key driver of economic growth at play in the province, added the report. Oil and gas producers are slated to spend more than $24 billion this year, an 18 per cent increase over 2010.
“Continued strength in energy-related sectors will support a slight acceleration in economic growth to 3.9 per cent in 2012, maintaining Alberta’s status as a growth powerhouse,” said Wright. “This has had a positive impact on employment, as more than 77,000 jobs were added to the Alberta economy in the first eight months of this year, which was the strongest gain ever recorded over this period in the province.”
© Copyright (c) The Calgary Herald
The Bank of Canada’s changing language
I love this data below as it is easily summarized into: World events mean that mortgage rates in Canada are going to stay low for about another year. This is great news for people in the variable as rates (Prime) were expected to rise and they are not going to for a while now. Fixed rates will also stay low too so everyone wins.
If you are not sleepy right now then do not bother to read the rest of this below. Perhaps bookmark it for a sleepless night and use the powers of economic speak to zonk you out then.
On Wednesday September 7, 2011, 4:51 pm EDT
Watching the Bank of Canada’s language on the economy change over the past year is like seeing a healthy, upbeat person gradually come around to the idea that a serious illness is overtaking them.
A year ago, the central bank was continuing the slow process of raising its key interest rate toward familiar levels, as the western world began to put the financial cataclysms of 2008 behind it. On Sept. 8, 2010, the target rate for overnight loans between banks rose to one per cent.
And here’s how the world economy looked to the Bank of Canada — getting better, but though not steadily: “The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies,” the Bank of Canada said in September of 2010.
And Canada’s economy — buoyed by demand for commodities like oil, gas, uranium and fertilizer — was recovering: “The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity,” the central bank’s statement read at the time.
It was canny, however, about forecasting any further increases in rates, sensing possible trouble ahead: “Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.”
That was code for don’t get too excited, folks: a lot could still go wrong — and it did.
Remember that for more than a year, from April 2009 to June 2010, the central bank’s key rate had been 0.25 per cent — effectively zero, or maximum stimulus, as a rising Canadian dollar did some of the bank’s inflation-cooling work and the world began to recover its appetite for Canadian commodities.
The bank had gradually increased its key rate over the next few months to 0.75 per cent. Then came the bump to one per cent exactly a year ago.
Since then, as Europe’s debt problems have flared in Greece, Ireland, Portugal and Spain, and in some people have taken to the streets to protest government attempts to curb spending and remain solvent, the Bank of Canada’s key rate has been rock steady at one per cent.
Now watch how the language has moderated, as central bank economists saw the economy flattening:
On Oct. 10, leaving the rate at one per cent, the bank said: “In advanced economies, temporary factors supporting growth in 2010 — such as the inventory cycle and pent-up demand — have largely run their course and fiscal stimulus will shift to fiscal consolidation over the projection horizon .… The combination of difficult labour market dynamics and ongoing deleveraging in many advanced economies is expected to moderate the pace of growth relative to prior expectations. These factors will contribute to a weaker-than-projected recovery in the United States in particular.”
By Dec. 7, it saw recovery “largely as expected,” but sounded the first note of bigger trouble ahead: “At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.”
On Jan. 18, 2011 — happy new year! — there were signs the economy was rebounding all too well, with government spending in the U.S. and Canada showing up in growth all over. As well, Canadian commodities remained hot sellers, pushing up the value of the Canadian dollar.
In fact, the bank said, “the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.”
Translation: “No need to raise interest rates.”
On March 1, the recovery kept pushing ahead, driven by exports, but the bank left rates unchanged, and stuck with this now-boilerplate paragraph at the end of its release: “This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.”
On April 12, the bank forecast 2.9 per cent gross domestic product growth in 2011 and 2.6 per cent in 2012 — all good, with robust spending and business investment leading investors to “become noticeably less risk-averse.”
And yet, searching the horizon for clouds, the bank saw enough to stick with its boilerplate: “This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of material excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.”
By May 31, however, the bank began to see some of its more horrible imaginings coming true, and the boilerplate was dropped. Again leaving the key rate at one per cent, the bank said global inflation might be growing, but “the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.”
Stimulus might be “eventually withdrawn,” it said, but “such reduction would need to be carefully considered. ”
On July 19, the bank’s language noted slower-than-expected U.S. economic growth, Japan recovering at a lower-than-expected pace from its nuclear disaster, and said “widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets.” In other words, investors were getting jumpy about how Europe might pull itself together without major defaults and weakened currency.”
And on Wednesday, laying out all the factors that are besetting global growth and the Canadian economy, the bank finally sounded a doctor facing a sick patient.
It didn’t explicitly suggest returning to more stimulus (lowering interest rates), as some economists had forecast it might, but the bank no longer expected to withdraw economic stimulus:
“In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.”
Alberta repeat home buyers moving on to larger homes
Alberta repeat home buyers moving on to larger homes
This article is EXACTLY what we have been hearing over the last 6 months.
CALGARY — Repeat home buyers in Alberta are moving on to larger or more luxurious homes, according to a survey released Tuesday.
The TD Canada Trust Repeat Home Buyers Report said Albertans are the most likely in the country to feel they compromised on the layout and features of their current home and are not willing to do so again in their next house hunt.
The report, which surveyed Canadians who recently bought or intend to buy a home that is not their first, found that 59 per cent of Alberta repeat buyers are moving on to larger or more luxurious homes. And even though many are upgrading, they are among the least likely to need a mortgage to finance the purchase (58 per cent versus 69 per cent nationally).
“If you are moving because you want more room or certain features in your home, a renovation could be an option to save the expense of moving by making your current home work for you,” said Jessy Bilodeau, Mobile Mortgage Specialists, TD Canada Trust.
The TD Canada Trust Repeat Home Buyers Report found that seven-in-10 Alberta repeat buyers were moving earlier than they expected (40 per cent) or had no intention of moving but now find themselves on the house-hunt again (30 per cent). The number of people intending to buy a home that is not their first in the next two years increased 21 percentage points over 2010 (84 per cent versus 63 per cent in 2010).
The large majority of Albertans (84 per cent) plan to sell their current home before buying a new one. More than one-in-five (22 per cent) say market conditions played a factor in their decision to buy another home and 69 per cent expect to sell their home at or above asking price, said the report.
“The reality is that it’s still a buyers’ market, and homes need to be priced correctly to sell,” said Bilodeau.
Albertans are more likely this year to say they are keeping their current home as a rental property (46 per cent versus 25 per cent last year) or that they will stay in their current home and the new home will be a rental property (41 per cent versus 25 per cent last year).
© Copyright (c) The Calgary Herald
Owning a Calgary house more expensive: But still among most affordable in Canada
This is good news for those looking to buy. Prices are stable and affordable.
Owning a home in Calgary became more expensive in the second quarter of this year but housing in the city is one of the most affordable among major cities in Canada, says a report released Monday.
“The long hoped for rebound in the Calgary-area market that appeared to be on track earlier this year lost some momentum in the second quarter,” says the RBC Housing Trends and Affordability report.
“After posting two successive increases, home resales edged down during the April-June period, providing little impetus to prices, which continued to move sideways for the most part.
“With such absence of price pressure, the loss of housing affordability was minimal in the quarter. The RBC measures for the Calgary area rose between 0.4 and 1.1 percentage points, representing a smaller deterioration among major Canadian cities. Owning a home in the area, therefore, continues to be close to the most affordable that it has been in almost six years.”
The RBC Housing Affordability Measure, which has been compiled since 1985, shows the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes and utilities. The higher the measure, the more difficult it is to afford a house. For example, an affordability measure of 50 per cent means that home ownership costs take up 50 per cent of a typical household’s pre-tax income.
In the second quarter, Calgary’s measures were 37.1 per cent for a detached bungalow, 38.5 per cent for a standard two-storey, and 23.0 per cent for a standard condominium. The measures increased by 0.6 per cent (bungalow), 1.1. per cent (two-storey) and 0.4 per cent (condo).
However, they are lower than a year ago by 3.1 per cent for a bungalow, 2.9 per cent for a two-storey and 1.6 per cent for a condo.
“Notwithstanding the latest bout of uncertainty, we believe that the strong economic fundamentals of Alberta and Calgary will find their way into the housing market and will support homebuyer demand in the period ahead,” says the report.
RBC says the average bungalow price in Calgary declined by two per cent year-over-year in the second quarter to $411,700 while a two-storey dropped by 1.6 per cent to $415,200 and a condo fell by 1.1 per cent to $249,000.
Sano Stante, president of the Calgary Real Estate Board, said prevailing negative economic conditions will restrain any increases in interest rates for awhile.
“Those are increases that we fully expected prior to these events and they’ve now been abated,” said Stante. “That was our biggest risk of deteriorating affordability.
“With an assurance that interest rates are going to stay low for the next 12 months anyway — and there’s somewhat of an assurance — then it really looks like we’re going to lead the nation in affordability especially when we start to get increased employment and in-migration towards the end of this year. That should really lend to a more robust real estate market.”
Robert Hogue, senior economist with RBC, said he too expects Calgary’s affordability to remain about the same.
“Previous to a few weeks ago we expected higher interest rates would start really putting more and more pressure across the board in Canada including in Calgary on the monthly costs of home ownership,” he said. “Now we’ve pushed everything out to the middle of next year.
“For the next few months or quarters I think chances are that affordability is probably will go sideways, the same as the housing market.”
© Copyright (c) The Calgary Herald
A 180 Degree Change in Mortgage Rate Expectations
This last blip in the stock market has taken the wind out of the world’s recovery sails. It now looks like rates are going to stay the same or go DOWN!?! for the 12 months or so.
The USA has said for the 1st time ever that they are not going to change their rates until 2013. They have never given a date in the past and this IS a big deal. It means that Canadian rates are going to have to track closely to the USA rates or our dollar will skyrocket and quickly slow our growth and path to recovery.
That would mean that while fixed rates have NEVER been better in 111-years, variable rates are also super attractive because Prime (P) will now stay close to 3% (where it is today) and the rate of P-8% = 2.2% for a mortgage is CRAZY low now that we know it is going to stay around there for 2 more years!
Call to discuss if you have any questions on this. 403-681-4376: Mark
A 180 Degree Change in Rate Views
- 46% probability of a rate cut Sept. 7.
- 100% probability of a rate cut by year-end.
That’s what prices of closely-followed overnight index swaps (OIS) were implying at the close of business on Monday. OIS trade on market expectations for Bank of Canada rate moves.
That amounts to a 180 degree swing in market psychology. Just a few weeks ago traders were pricing in a rate hike by January.
“As we’ve seen, markets can swing and perception can swing quite aggressively, and we could well be back to a fall expectation [of a rate hike] in a month’s time,” said RBC economist Eric Lascelles to the Globe & Mail.
Lascelles counterpart at Scotiabank, Derek Holt, says: “Any talk of the Bank of Canada hiking this year is just foolish in my opinion.”
Peter Gibson, chief portfolio strategist at CIBC World Markets notes: “I think it’s clear that there are a lot of serious problems still in the world and it’s more likely that we’re setting the stage for a sustainably low level of interest rates for a very long time.”
And that is the takeaway here.
Despite the roller coaster of emotions as of late, this about-face in rate assumptions reminds us of the necessity to focus on long-term trends. Long-term, North America’s prognosis still seems compatible with low-growth and low-inflation. That’s an environment where fixed mortgage rates typically underperform.
Analysis: Canada rates seen lower for longer; cuts unlikely
This is good news for people in variable rates AND fixed rates.
It all means that mortgage rates are going to stay low for longer than expected. Prime will stay lower longer partly because the US has for the 1st time said that they will leave the very low rates until 2013 to give the market something solid to work from.
That will also cause the fixed rates to stay lower, longer.
Good news all around.
By Ka Yan Ng
TORONTO (Reuters) – A dovish U.S. Federal Reserve will likely force the Bank of Canada to keep its interest rates lower for longer, but market bets on a Canadian rate cut by year-end are unlikely to pay off.
Analysts said a rate cut would send all the wrong signals for an economy that is growing, albeit slowly, and could hurt the central bank’s credibility.
“In the current situation, a rate cut by the Bank of Canada would mean that you have a second recession in Canada,” said , Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
“And that’s not something that we see happening.”
Expectations for Canadian interest rates have swung wildly in recent weeks. As recently as July 19 traders priced in higher expectations of a rate increase this year, following unexpectedly hawkish language from the Bank of Canada.
A July 20 survey of primary dealers showed most saw a rate hike in September or October.
But tightening expectations fell sharply as the U.S. debt ceiling debate and the downgrading of the U.S. credit rating by Standard & Poor’s fueled fears of a recession there, triggering some of the worst stock market selloffs since the collapse of Lehman Brothers in 2008.
Canadian overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, and short-dated government debt began to show expectations of a rate cut rather than an increase.
The Canadian dollar also fell more than a nickel against the greenback as the outlook for monetary policy moved from tightening to easing.
Rate cut expectations were reinforced by the U.S. Federal Reserve’s unprecedented announcement on Tuesday that it would likely keep rates near zero for another two years.
Analysts said the Bank of Canada is likely to keep interest rates lower for longer than previously expected because of the Fed move. One issue is that widening the rate differential between the two countries could cause an unwelcome appreciation in the Canadian dollar.
But they caution that swap markets, which are pricing in a quarter-point rate cut before year end, have it wrong.
Analysts said a cut is not needed because the Canadian economy, though highly dependent on the big U.S. market, is still growing. The central bank’s key policy rate, currently at 1.0 percent, is also seen as still being very accommodative. The rate was cut to a record low of 0.25 percent after the financial crisis.
HOUSING, RISK TO CONFIDENCE FACTORS
Those emergency rates provided conditions for the domestic housing market to surge to bubble-like proportions in some parts of the country, and allowed Canadians to take on massive personal debt loads.
Analysts said a rate cut could reignite these two segments of the economy, risks that have already been flagged by the central bank.
“The bank is going to need a lot more evidence that the downside risks are going to stick with us before they totally rewrite their script from the last statement and move toward outright easing,” said Derek Holt, an economist at Scotia Capital, noting that dovish language would inevitably have to accompany a decrease in the central bank’s key rate.
“That would be a blow to business and consumer confidence in the country as opposed to the more supportive role, which would be essentially to just stay off on the sidelines and not do anything on rates for a long time yet.”
Holt is already the most bearish among Canada’s 12 primary dealers — institutions that deal directly with the central bank as it carries out monetary policy — and is comfortable with his call that the next rate hike will be in the second quarter next year.
If anything, it could be later, “if the Fed is true to its word in terms of maintaining stimulative policy all of next year and into 2013,” he said.
Analysts said the risk of a rate cut is now more likely than an increase, given Canada’s trading ties to the United States and the risk that a recession there would also pull Canada’s economy lower.
“It is probably appropriate to price in some risk of the next move by the BoC being more a cut than a hike, just at this stage,” said Michael Gregory, senior economist at BMO Capital Markets.
“But I think that fades within six months and you start to believe that is going to skew to the next risk being a hike rather than a cut.”
($1=$0.99 Canadian)