The Bank of Canada is sticking to its promise to hold interest rates at the current rate of 0.25% after the latest rate announcement at the end of October. Experts concur it is not the time to change it.
The bank is expecting to keep the current rate until at least June 2010 which will mean the level will have been low for over a year. As any real estate agent would tell you, one of the major factors why the Canadian real estate market has seen a good rebound from the recession, is the attractiveness of these low interest rates, which is allowing consumers to buy properties.
However, there are already voices crying out for an interest rate increase. While we are seeing a large bubble forming around the world this is making some people decidedly uncomfortable. Rather than risk the bubble bursting, many think it can be headed off by increasing interest rates. Despite rising prices and a quicker pace in the real estate trade, most of the experts say it is not the time to raise rates.
We need to look at the logic of why the experts don’t believe the interests rates should increase and the main reason is that although the BoC predicted a 2% rise in the third quarter of 2009 the actual GDP growth is completely different. One of the other aspects concern the domestic industry which is still observing very high levels of trade deficit and therefore a slower improvement.
The use of leverage, which is a means of using debt to increase investment, is still poor and there are no signs of it increasing. There is more calmness around due to inflation running at roughly -1%. Lastly the housing market has remained fairly steady without the massive fall that has been feared by all. Prices are growing, but the stock flow remains stable. With the housing downturn last winter there was a backlog of properties which are now selling, as the demand is larger so the prices rise.
It’s more than plausible that the Bank of Canada will not break its promise and will hold down interest charges for at least eight more months. At least now the house buyer can feel assured in purchasing their new property.
Tags: Canada, interest rates