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BoC should begin slowing down on its rate hikes – analyst

by Ephraim Vecina 05 Nov 2018 MBN

With employment data seeing respectable and consistent gains across the board, the Canadian economy has entered a stage where additional interest rate hikes may come less frequently, according to CIBC Capital Markets chief economist Avery Shenfeld.

In its latest trade numbers release late last week, Statistics Canada said that while slightly lower wage growth and export strength also featured in the bureau’s latest report (covering September), the Bank of Canada should not view this as sufficient cause for yet another rate increase.

“On balance, this isn’t the kind of data the BoC will need to advance a rate hike into December,” Shenfeld explained in an investor note, as quoted by Bloomberg. “But there’s still another jobs report due before that decision date.”

Canada Mortgage and Housing Corporation’s former chair Robert Kelly believes that rising interest rates will be manageable even for beleaguered households, as long as these hikes remain “marginal”.

“I personally don’t think there will be a lot of impact in terms of housing prices as rates slowly edge up,” Kelly said in an interview. “The only real issue will occur in the next downturn when people realize how much debt they’ve taken on.”

Read more: BoC doublespeak on rate hikes muddies the waters – DLC’s Cooper

The debt spree that Canada has enjoyed in the last few years of record-low rates might prove to be yet another burden on households should the economy become more sluggish than anticipated, Kelly warned.

“Canadians, historically, were debt-averse. That’s no longer the case,” Kelly stated “My key ratio that I look at is personal debt-to-disposable income. In the year 2000 it was about 100%. Now it’s getting closer to 170%.”

“That 170% cent is now the highest of the G7. So, that implies [that] the next downturn could be a little tougher on housing than in other major industrialized countries.”

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