Economy
Bank Of Canada Maintains 5% Interest Rate Amid Housing Supply Shortage
The Bank of Canada has instituted a second “conditional pause” at a 5% interest rate, following ten consecutive hikes. The decision was discussed by finance expert Rubina Ahmed-Haq and interviewer Antony Robart, with the central bank citing less severe home price drops than anticipated due to a structural shortage of housing supply. This viewpoint is shared by Stephen Brown from Capital Economics and other economists who predict further market declines.
According to Canadian Real Estate Association data, home prices dropped 18% from March 2022 to January 2023, before rebounding 8% in the spring and peaking again in June. The Bank of Canada attributes this unusual pattern to a structural lack of housing supply. In response, the Canada Mortgage and Housing Corp. has suggested adding about 3.5 million housing units by 2030 to restore affordability.
Carolyn Rogers (NYSE:), senior deputy governor at the Bank of Canada, highlighted the surprising resilience of the housing market compared to historical trends. Rachel Battaglia from RBC noted that limited supply has maintained home prices despite higher ownership costs due to rising interest rates. She observed that while Ontario and British Columbia have taken a harder hit, Alberta’s market, especially Calgary, continues to grow due to low debt-to-household income levels and the strength of the commodity-rich Western economy.
A report from Royal LePage emphasized homeowner anxiety about higher-rate mortgage renewals. Fixed mortgage rates tied to bond yields remain high, with TD Bank economist Rishi Sondhi predicting a 5% drop in average prices and a 10% sales activity drop by Q1 2024. RBC also projects unemployment rising to 6.5% within a year, which could affect the housing market.
However, record immigration levels are expected to boost employment growth. The mortgage stress test guards against potential borrowing cost increases. Auto loan delinquency rates exceed pre-pandemic levels, indicating potential economic challenges ahead. The Bank of Canada’s financial system review will detail households’ situation amid higher rates, with Governor Tiff Macklem noting a “narrower” path to economic stability.
Battaglia, along with other economists, expects home prices to continue to fall as higher interest rates affect homeowners. This comes as the Bank of Canada reports less steep home price drops than expected due to structural supply shortages despite interest rate hikes.
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© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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