Spring housing market resurgence could give Bank of Canada pause on rate cuts
Most economists agree that it’s just a matter of time before the Bank of Canada cuts interest rates. But, as the bank prepares to unveil its latest rate decision on Wednesday, at least one is warning that the potential for a hot spring housing market and a stimulative federal budget could push the timeline for those cuts back to the fall.
While some economists have predicted a spring cut from the current five per cent overnight rate, Derek Holt, head of capital markets economics at Bank of Nova Scotia, said a trim in April “would be about the dumbest thing the central bank could do.”
“It would be pretty awkward for the Bank of Canada to decide to cut into what I think is going to be a hot spring housing market with another round of stimulative government budgets that heap on more spending,” Holt said.
He’s equally skeptical about a June cut, which he says is already baked into the market and consensus forecasts.
“Our forecast is for the first cut to be delivered in September,” he said, adding that he believes softness in core inflation in January was temporary and will rebound.
“If they cut in (the) spring … I fear it would be a sharp policy error that would thwart prospects for greater policy easing later,” he said. “Patience may pay if they hold off to evaluate conditions and are ideally able to deliver more meaningful and persistent easing later.”
The view that there could be a cut as early as April is predicated on the belief that the central bank will ignore the effects of shelter price inflation, which is holding consumer price index growth above the bank’s target of two per cent.
“There’s been plenty of chatter about the Bank of Canada perhaps looking through shelter inflation due to the surge in rent and mortgage
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