The Bank of Canada lowered its growth forecast because of weak export demand from the U.S. and said it will probably cut interest rates again this year.
The central bank said today, in an economic forecast paper, that gross domestic product will expand 1.8 percent in 2008, , revising their October prediction of 2.3 percent. Inflation will slow to 1.4 percent in the second quarter, less than the bank's 2 percent target and October's 2.4 percent forecast, as a strong currency makes imports cheaper.
"The weaker U.S. economy will lead to additional downward pressure on Canada's export growth," Governor David Dodge said at a news conference in Ottawa after releasing the new forecast. "Further monetary stimulus is likely to be required in the near term.''
Policy makers reduced their main interest rate a quarter point to 4 percent on January 22, 2008, citing the need for more easing. It is widely believed that the new governor, Mark Carney, who becomes governor on Feb. 1, will cut the rate by a quarter point at each of his first three decisions starting March 4.
The central bank said in its report that "more accommodative monetary policy" in the world's industrialized economies should moderate a global slowdown, and that "lower policy rates" will support Canada's economy in the next two years. The bank said the forecast assumes further rate cuts by the U.S. Federal Reserve, which three days ago made an emergency cut of three-quarters of a point to stave off a recession.
Friday, January 25, 2008
Wednesday, January 23, 2008
Bank Of Canada Not Done In Cutting Rates
The Bank of Canada cut the overnight rate, the morning of January 22, 2008, by a quarter-point to 4.00%. According to a TD Economics Commentary, this was broadly in line with market expectations; however speculation was building in the days leading up to the meeting that the Bank might be more aggressive given that financial market confidence had been severely undermined by the prospects of a U.S. recession and the possibility of some contagion to the global economy. Speculation of a more aggressive Bank of Canada decision climaxed when the Federal Reserve caught financial markets completely off guard this morning with an inter-meeting cut of 75 basis points. Nevertheless, the Bank stuck to their guns with a more measured approach, reflecting their view that domestic demand on this side of the border is expected to remain strong. However, the Bank made it quite clear in the morning’s communication that they are prepared to deliver more rate cuts down the road when they stated that “further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to return inflation to target over the medium term”.
The prevailing thoughts now among economists are that the next move on March 4th will be a more aggressive 50 basis point cut. That rate decision will probably not be the result of declining domestic demand. So far, the domestic side of the Canadian economy appears well grounded. In today’s communiqué, the Bank noted that "despite tighter credit conditions, strength in domestic demand is expected to remain supported by continued income growth associated with the increase in commodity prices since October, which has led to further gains in our terms of trade.” It is also important to remember that unlike their American counterparts, Canadians are not getting hit on both ends of their asset portfolios. Home prices remain on the upswing in most major urban centers, and there is little concern that the Canadian housing market will start to mirror the slump in the U.S. In fact, it is believed that national home prices will rise at a rate of 5-7% in 2008, compared to a U.S. market that will likely absorb losses of around 5% or more.
However, it is generally believed that by the next meeting, data on the U.S. economy will show clear signs of a sharp economic slowdown. Given that inflationary pressures remain strong, a 50 basis point cut would provide insurance against the degree to which a U.S. economic downturn would affect the Canadian economy. Certainly, inflation will not provide a barrier to a more aggressive Bank of Canada. The central bank has indicated that increased competitive pressures in the retail sector and the one percentage point GST cut at the start of the year will cause both core and total CPI inflation to fall below 1.5% by the middle of this year before returning to their 2% target by the end of 2009.
Following the March 4th meeting, there could possibly be another 25 basis point cut. However, because there is so much economic uncertainty on both sides of the border, the degree of additional rate cuts will depend on how events in the U.S. unfold and whether financial market confidence is still question.
The prevailing thoughts now among economists are that the next move on March 4th will be a more aggressive 50 basis point cut. That rate decision will probably not be the result of declining domestic demand. So far, the domestic side of the Canadian economy appears well grounded. In today’s communiqué, the Bank noted that "despite tighter credit conditions, strength in domestic demand is expected to remain supported by continued income growth associated with the increase in commodity prices since October, which has led to further gains in our terms of trade.” It is also important to remember that unlike their American counterparts, Canadians are not getting hit on both ends of their asset portfolios. Home prices remain on the upswing in most major urban centers, and there is little concern that the Canadian housing market will start to mirror the slump in the U.S. In fact, it is believed that national home prices will rise at a rate of 5-7% in 2008, compared to a U.S. market that will likely absorb losses of around 5% or more.
However, it is generally believed that by the next meeting, data on the U.S. economy will show clear signs of a sharp economic slowdown. Given that inflationary pressures remain strong, a 50 basis point cut would provide insurance against the degree to which a U.S. economic downturn would affect the Canadian economy. Certainly, inflation will not provide a barrier to a more aggressive Bank of Canada. The central bank has indicated that increased competitive pressures in the retail sector and the one percentage point GST cut at the start of the year will cause both core and total CPI inflation to fall below 1.5% by the middle of this year before returning to their 2% target by the end of 2009.
Following the March 4th meeting, there could possibly be another 25 basis point cut. However, because there is so much economic uncertainty on both sides of the border, the degree of additional rate cuts will depend on how events in the U.S. unfold and whether financial market confidence is still question.
Tuesday, January 15, 2008
2008 to Bring Balance to Fraser Valley Real Estate Market
It is projected that both the Fraser Valley and Greater Vancouver will see another solid real estate year in 2008, with the trend being more selection for buyers and prices rising at a slower pace than we have seen in recent years.
The BCREA (British Columbia Real Estate Association), forecasts that the average residential price increases we will see in 2008 in the Fraser Valley will be approximately six percent. They expect that detached homes will rise approximately six percent, but that townhomes may rise as much as eight percent and apartments somewhere in between, at approximately seven percent.
Cameron Muir, BCREA's chief economist, projects listing volumes will continue to increase in the Valley resulting in, "less upward pressure on prices, reducing the number of multiple offers, and giving consumers and members more time for comparison and negotiation."
"How can prices continue to rise after so many years of increases?", you may ask. Muir says consumer confidence in the Lower Mainland and Fraser Valley remains high, "Despite some challenges in the economy such as the high Canadian dollar, we have strong job growth, wages rising higher than inflation and mortgage rates are expected to edge down in the first half of 2008."
Overall experts predict continued stability in Fraser Valley's 2008 housing market, with the resale market remaining sound, new construction at a steady level and hot demand for rental and apartment units, all due to underlying strong economic fundamentals.
The BCREA (British Columbia Real Estate Association), forecasts that the average residential price increases we will see in 2008 in the Fraser Valley will be approximately six percent. They expect that detached homes will rise approximately six percent, but that townhomes may rise as much as eight percent and apartments somewhere in between, at approximately seven percent.
Cameron Muir, BCREA's chief economist, projects listing volumes will continue to increase in the Valley resulting in, "less upward pressure on prices, reducing the number of multiple offers, and giving consumers and members more time for comparison and negotiation."
"How can prices continue to rise after so many years of increases?", you may ask. Muir says consumer confidence in the Lower Mainland and Fraser Valley remains high, "Despite some challenges in the economy such as the high Canadian dollar, we have strong job growth, wages rising higher than inflation and mortgage rates are expected to edge down in the first half of 2008."
Overall experts predict continued stability in Fraser Valley's 2008 housing market, with the resale market remaining sound, new construction at a steady level and hot demand for rental and apartment units, all due to underlying strong economic fundamentals.
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