According to a recent Reuters poll, the Bank of Canada is expected to maintain its key interest rate at 5.00% during its September 6 meeting, extending this rate through at least March 2024. The consensus among the majority of economists suggests stability, although a growing minority anticipates a single rate increase.
Inflation, which the Canadian central bank aims to control at around 2%, exceeded expectations by reaching 3.3% in July. This inflationary pressure poses a risk to the assumption that the central bank has already achieved its target rate.
Amidst a housing market that experienced a 50% surge during the pandemic followed by a 10% decline from its peak, signs of a housing market resurgence are emerging. The anticipated slowdown in economic growth, projected at 1.1% in Q2, coupled with rising unemployment, provides the central bank with leeway to maintain interest rates at their current levels.
Of the economists surveyed, 31 out of 34 predict no alteration to the overnight rate, while the remaining three anticipate a 25-basis-point increase. The prevailing sentiment suggests that the rate will likely remain fixed at 5.00% throughout the remainder of the year. However, the potential for future rate hikes remains contingent on economic growth surpassing expectations.
While certain economists envision another rate increase to 5.25% by year-end, the general consensus is that the Bank of Canada will sustain its policy rate at or above the current level until at least March 2024. This forecast aligns with the anticipated trajectory of rate cuts by the U.S. Federal Reserve.
The poll also indicates a forecasted 5.0% reduction in average home prices for the year, a more optimistic outlook than previously predicted. Despite the absence of imminent rate increases, the perceived threat of such actions is expected to keep potential homebuyers cautious. The market is expected to gain momentum in the early months of the next year when it becomes evident that the central bank's next move is a rate reduction.
The possibility of heightened mortgage payments for increasingly costly properties, combined with record immigration rates, is poised to drive a demand for rentals. All 10 analysts surveyed concur that average rents will either slightly or significantly increase throughout the rest of 2023. Most analysts also foresee a deterioration in rental affordability over the coming year due to housing shortages and persistent demand.
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