Bank of Canada raises rates again...where will it stop.
As the bank of Canada raises the overnight rate again where will it stop. The following article, taken from the Wall Street Journal, takes the stance that the rates will continue to climb to over 2% by the end of the year.
What effect is this going to have on the Real Estate market in Edmonton? It will raise the cost of borrowing this is a given, will spur activity and therefor prices? That remains to be seen, but given the last months activity I can not see it falling any further. In my opinion the market has started to pick up and will follow the trend that was set last year: a late start but once it got going it stayed steady all the way into December.
In synopsis this would be a very good time to get into the market, low prices, high inventory, low buyer activity and if you have a preapproved mortgage, you may have dodged last nights rate increase.
TORONTO--The Bank of Canada reinforced the message that it will move slowly with future interest-rate increases as it reduced its growth forecasts Tuesday and pointed out that business investment in Canada remains stalled.
The bank had already struck a careful stance on policy at its last policy announcement in June, but Tuesday's statement put renewed emphasis on caution even as the bank raised its overnight target by 0.25 percentage point for the second consecutive policy date, bringing the key policy rate to 0.75%.
In June, the Bank of Canada became the first central bank among the Group of Seven advanced economies to raise interest rates since the start of the global recession as it moved towards bringing rates up from the ultralow, emergency levels adopted during the crisis.
After Tuesday's statement, the Canadian dollar fell, bonds rallied and investors priced in a reduced chance of a rate increase at the bank's next policy announcement on Sept. 8, suggesting the downbeat tone of the statement caught the market somewhat off guard.
Analysts expect the bank to continue raising rates, but many believe it will pause on at least one of its three remaining policy dates this year.
The statement replicated the key elements of the June statement, notably the concluding line that "[given] the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments."
One telling difference came in the bank's growth forecasts, with the 2010 forecast reduced to 3.5% from 3.7% in April and the 2011 forecast reduced to 2.9% from 3.1%. Another was that the bank pushed out its forecast for the economy reaching full potential to the end of 2011, two quarters later than forecast in April's monetary-policy report.
"It's certainly a more cautious outlook than we had in the last monetary-policy report, but reflects the change in tone that we saw in the language when they raised rates in June," said Avery Shenfeld, chief economist at CIBC World Markets.
The fact that the bank continues to describe its current rate setting as "leaving considerable monetary stimulus in place" suggests that further rate increases are nonetheless likely, Mr. Shenfeld said. "Don't be surprised if they continue to raise rates in September and October even while being somewhat cautious on the global context," he said.
The mixed message of raising rates on one hand and striking a circumspect tone on the other likely also reflects a deliberate strategy designed at softening the effect of the bank's tightening on markets.
"Markets are not dumb. They know that, when central banks hike, they tend to hike for a long time, and as a result there's a temptation to price in a whole of hiking and whole of Canadian dollar strength," said Eric Lascelles, chief Canada macro strategist at TD Securities. "That's not particularly constructive right now. You really want to be able to deliver this in spoon-sized bites rather than all at once," he said.
To achieve that, the bank softens its rate increase with a guarded tone about future increases.
Mr. Lascelles said he was struck by the bank's statement that "business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession."
"Business investment really isn't happening in Canada. It's a curious thing," Mr. Lascelles said, adding that the strength of the Canadian dollar should encourage business investment.
By DON CURREN