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RBC predicts interest rate hikes

November 29, 2017

RBC is expecting higher mortgage rates and is warning of the effect of a further increase.
Since July, two Bank of Canada hikes have raised its key overnight lending rate by 50 basis points, or 0.5 per cent.
A similar increase would represent the most significant monetary policy tightening in Canada since 2007, said Robert Hogue, a senior economist with RBC.
RBC expects the Bank of Canada to raise its overnight rate by another 100 basis points to 2 per cent by the end of 2018.
“Pressures arising from longer-term rates—which we forecast to climb in tandem with short-term rates—are poised to build even more intensely. We project the five-year Canada bond yield to reach 2.7 per cent by the end of 2018 or roughly 160 basis points higher than where it was at the start of 2017. This would represent the biggest increase over a two-year period since early 1995,” he said.
The RBC forecast calls for home resales to decline by 4.2 per cent in 2018 following a 4.8 per cent drop in 2017.
“At 488,000 units next year, our projected sales level would still represent brisk activity. It would stand well above the 10-year average of 471,700 units,” Hogue said.
RBC Economics is projecting a deceleration in price increases from 11.1 per cent in 2017 to just 2.2 per cent in 2018, nationwide.

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