Posthaste: Obstacles to the Bank of Canada cutting rates are fading — except for this one
When the Bank of Canada made its first interest rate cut last month there were three risks economists cited that could stall the cycle — the Canadian dollar, the housing market and wage growth.
Douglas Porter, chief economist at BMO Capital Markets, checked in on these potential stumbling blocks on Friday in his weekly column Talking Points to determine how we were doing.
“To quote Mr. Loaf: Two out of three ain’t bad … but is it good enough,” said Porter.
The big concern around the Canadian dollar was that the Bank of Canada moving ahead of the United States Federal Reserve would cause the currency to plunge.
Yet in recent weeks the loonie has been “remarkably well behaved,” said Porter. After a soft start in the first three months of the year, the loonie appears to have found some stability at around 73.5 US cents. A weaker greenback as the U.S. economy softens and the prospect of Fed rate cuts have helped steady the currency.
Nor has the housing market flared up again as some predicted. Porter said real estate data from Canada’s major cities last week showed little pickup in activity even after the interest rate cut last month.
“The data support the initial view that it was actually sellers who stepped up, not buyers, after the bank moved,” he said.
Sales were down by the double digits in many cities from a year ago and big increases to inventories are shifting the balance in buyers’ favour.
“While sellers and the real estate industry may not like it, the reality is that a sleepy housing market may be exactly what policymakers would like to see at this point, and it also holds out the tantalizing potential of some improvement in extremely strained affordability,” he said.
However, wage growth remains a fly in the
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