Lower than expected inflation in August may prove to be an unexpected boon for homeowners with variable rate home mortgages, as lower growth is likely to prompt the Bank of Canada to pause in its rate hike regimen, according to some analysts.
Reuters News reports that Canada’s ‘loonie’ “fell to a session low against the U.S. currency on [September 20] after Canada’s annual inflation rate in August slowed, suggesting the Bank of Canada may pause in its interest rate hiking campaign.”
Numbers from Statistics Canada indicate that inflation eased back to 1.7 percent in August (from 1.8 percent in July), led by moderating prices for energy and a drop in clothing prices. Analysts surveyed by Reuters, who had expected “a slightly higher annual rate of 1.9 percent,” point out that “third-quarter inflation, calculated on an annual basis, would likely be slightly lower than the Bank of Canada’s July forecast of 1.8 percent.”
Reuters analysis projects that lower-than-expected inflation numbers “could give the central bank more reason to pause after raising its benchmark interest rate three times since the start of June;” the Bank of Canada being the only G7 central bank to have raised rates so far this year.
Meanwhile, advisors at Desjardins Group Economic Studies warn of a “fairly high risk of a relapse into recession,” pointing to a “cooling housing market and the winding down of government stimulus programs as indicators of slow to moderate growth in the future.” Desjardins Group’s vice-president and chief economist, Francois Dupuis, predicts that, “interest rates will stay very low until both investors and monetary authorities are convinced that the global recovery is on a solid footing.”
A pause in the Bank of Canada’s rate-hiking regimen will come as welcome relief for homeowners with variable rate mortgages, as the central bank’s market-setting overnight lending rate has jumped 75 basis points from 0.25 percent to 1.0 percent so far this year. Continuing low mortgage rates may also prove a boon for Canada’s languishing real estate markets, which have shown a marked reduction in activity over the summer, following the exhaustion of pent-up demand that was vented in brisk market activity during the first half of 2010.
