No rate hike, B-20 is “just right” says panel of economists

The Bank of Canada is unlikely to increase interest rates next week according to a panel of leading economists, which has also commented on Canadian housing policy.

The Bank of Canada Overnight Rate Survey from global comparison site asked 11 economists for their views and found they were unanimous that the BoC would hold steady at 1.75%.

“Other than an overheating housing market in many major cities, there is still much economic uncertainty. A wait-and-see approach is prudent until the economy is clearly pointed in one direction or another,” commented Moshe Lander, Economics Professor at Concordia University.

Alicia MacDonald, principal economist at the Conference Board of Canada added that the BoC is predicting a significant slowdown in economic growth this quarter, meaning it can be cautious on rate rises.

Up or down next?

While the panel is certain that Governor Poloz will not be announcing a change this month, they are not speaking with one voice on when it will happen, or even on the direction.

Five of the economists are predicting a rate increase in July, three say it will rise in October, and two believe there will be a decrease this year; Gregory C Mason, Associate Professor of Economics at the University of Manitoba, thinks it will drop on July 11 and Hubert Marleau, Chairman at Palos Capital, is forecasting a fall on October 30th.

Household debt and the housing market

There is also division regarding household debt and the Canadian housing market.

Just 55% of the panel had a negative outlook on debt, despite the record levels being carried by households.

But on housing affordability almost two thirds (64%) have a negative outlook.

Asked how policies should change to address housing affordability, 5 of the economists said relaxed zoning restrictions and/or cutting regulation.

“If the government wants to address housing affordability, the easiest place to start is to ease up on zoning laws that make it hard for home builders to respond to high housing prices,” said Professor Lander.

Five of the economists expect Vancouver will experience the greatest housing downturn over the next three months, with three suggesting Toronto will fall the most.

B-20 stress tests are “just right”

Almost half (45%) of the panel said that the B-20 mortgage stress tests were “just right” while 27% think they should be tougher, and 18% think they are too severe.

Steve Randall