Those who still think that higher interest rates are imminent, should read between the lines of this CBC article.
Today the Bank of Canada has decided to hold rates steady, with some economists believing that further rate cuts later this year are a “distinct possibility”. And with Bank of Canada’s growth forecast that has recently been cut to a paltry 1.4% for 2016, does it surprise anyone anymore why rates remain at historically ridiculously low levels.
So what does this mean for the Toronto and Vancouver hot real estate markets?
“BMO’s Doug Porter said. “The scalding housing market in some cities would be a good reason for the bank to stay put, but they seem to have washed their collective hands on that front.”
I find it fascinating how we now live in a world where fiscal and monetary policy economics co-exist simultaneously. Even though the Canadian government is expected to announce significant fiscal spending initiatives in the upcoming budget later this month, the Bank of Canada appears to have thrown in the towel as regards Canada’s hottest real estate markets.
Can you really blame Stephen Poloz and his Bank of Canada posse? Although, Vancouver and Toronto real estate markets are on fire right now, the rest of the country, not so much. Attempting to put the brakes on Toronto and Vancouver real estate market prices would only decimate all real estate markets around the country.
This means that if the BOC decided to increase rates to cool the countries hottest markets they would at the same time inadvertently decimate and doom weaker markets such as Calgary and other cities country wide feeling the pain associated with rock bottom oil and other mined resource based commodities.
This, combined with already paltry growth forecast for 2016, core “official inflation” of well under BOC targeted 2% rate, spiking “real inflation” for things that truly matter to us, such as food and housing costs, which is partially offset by lower energy prices, and the fact that real estate is one of the very few shining lights in Canada’s economy today, is the main reason why the BOC has decided not to touch or do anything that may put the countries real estate markets in jeopardy.
“”Fiscal stimulus from Ottawa is no miracle growth cure for the economy, and any relapse in oil prices will simply expose the underlying soggy growth outlook,” BMO’s Doug Porter said.”
Notwithstanding a “Black Swan” type event, what all this means is that we can continue to expect an an environment of low interest rates, and even the possibly of even lower rates in Canada later this year, for much longer than you may think is possible.
This will have some major and far reaching implications for many Canadians. People on fixed or pension incomes, retirees, savers, new graduates and those with dreams of achieving home ownership one day and even those renting, especially in the greater Toronto and Vancouver areas, are already getting a rude awakening and feeling even more financially stressed today than even a short few months ago with no visible silver lining on the horizon to look forward to any time soon.
To combat this, the BOC has used its monetary policy muscles to lower rates to ridiculously low levels. Though they may have averted another Great Depression by doing so, it has done very little to reignite disparately needed economic growth across the entire country.
At the same time, the federal government appears to be on the threshold of unleashing its fiscal policy powers with promises of infrastructure spending soon.
Adam Smith and Maynard Keynes must be having one heck of an ideological union in in the afterlife. Who would have thought that would ever be possible? 🙂