Columnists from Forbes.com have been reading “Tea Leaves from the Bank of Canada” in order to determine where Canada’s home mortgage and interest rate markets are likely headed after the Bank of Canada hiked its overnight lending rate on September 8. (Immediately after the rate hike announcement, “six major Canadian banks raised their prime borrowing rates to 3% effective Sept. 10, [a rate that is] still well below the 4.65% 10-year average.”)
What surprised Forbes.com’s market analysts was not that the Bank of Canada chose to hike its interest rate for the third time this year, nor the major banks following suit, but rather the “hawkish tone of the central bank’s statement announcing the decision,” language that “glossed over glaring signs of slowing domestic growth.” The strong statements emanating from Canada’s central bank in its rate hike announcement, in turn, raised market expectations of a further rate hike when the Bank of Canada next meets on October 19 to review its rates.
Forbes.com reports that “(m)arkets are currently pricing in a 25% chance of another hike at the Oct. 19 meeting and a 60% chance for the Dec. 7 meeting.” However, they assert that as the focus of Canada’s central bankers shifts to the “unusually uncertain” economic outlook cited in the bank’s rates announcement, “further tightening will become increasingly unlikely.” The Bank of Canada “stressed the instrumental role of consumption and investment,” according to Forbes but downplayed the fact that the 2.0 percent growth of GDP in the second quarter fell far short of the 3.0 percent growth forecast in July.
Nonetheless, in a nod to the focus that has been placed on Canadian mortgage and housing markets, Forbes.com noted that, in addition to the Bank of Canada’s “relative optimism on the economic environment, the desire to discourage excessive debt practices and cool the housing market influenced the September hike.” Such concerns, they note, “may nudge the bank toward future tightening.”
It will be interesting to see how analysts tracking interest rates and mortgage rates in Canada are influenced by the recent spate of data showing Canada’s housing markets have cooled substantially over the summer while still remaining quite buoyant.
