Poloz holds door open for rate cut
November 25, 2019
Canadian home sales are now almost 20 per cent above the six-year low reached in February 2019, but remain 7 per cent below the heights reached in 2016 and 2017 when many fretted over a housing bubble.
The recent strength in housing sales gave the Bank of Canada another reason—along with healthy job gains and higher wage rates—to hold interest rates steady at its November rate-setting.
However, the door to a rate cut appears to be opening, noted Sherry Cooper, chief economist with Dominion Lending Centres.
“Bank of Canada Governor Stephen Poloz, one of the few central bankers to resist the global push toward easier monetary policy, acknowledged he’s begun to consider the merits of joining other countries in lowering borrowing costs,” Cooper stated in a report on the current housing market.
Many economists forecast that a rate cut is coming early in 2020.
At a press conference after the Bank of Canada’s decision to keep the current 1.75 per cent policy interest rate unchanged for an eighth straight meeting, Poloz said the Governing Council discussed the possibility of implementing an “insurance” cut to counter the global economic headwinds. But the Council decided against it because of the potential costs to such a move. These costs include driving up inflation that is already at the central bank’s 2 per cent target and fueling household debt levels that are among the highest in the world.
“Governing Council considered whether the downside risks to the Canadian economy were sufficient at this time to warrant a more accommodative monetary policy as a form of insurance against those risks, and we concluded that they were not,” Poloz said. The Bank of Canada “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist.”