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  • Three Major Banks Predicting Another Rate Cut

  • I Robert Floris am not afraid to admit that l was wrong with my prediction of the rate cut. What scares me at Mortgage Architects is if these banks are correct, how bad is our economy. If the rates are low and affordability goes up , are we not expanding to our limits. I realize the Canadian system is based on growth and credit but what happens when we have reached our max. My concern is for our current clients. Sure l believe affordability will still exist but if prices come down how will the average homeowner feel. As well l do not want to live in a country such as Japan where there has been negative growth. I really hope that the Bank of Canada know what they are doing .

     

    Three out of the five major banks have now predicted further rate cuts to come from the Bank of Canada, though this one doesn’t expect these record rates to last long.

    “The surprise interest rate cut by the Bank of Canada and resulting downward revision to our interest rate forecasts this year and next—we expect another 25 basis point cut by the Bank in the near term and historically low bond yields to rise more gradually than we assumed previously,” the Royal Bank of Canada wrote in its Canadian Housing Forecast update.

    Canada’s largest bank has forecasted the BoC overnight rate will sit at 0.50 per cent by year’s end before climbing back up to two per cent by the end of 2016. The overnight rate currently sits at ¾ of a per cent.

    Meanwhile, the five-year bond yield is expected to climb slightly to 1.8 per cent by end-of-year 2015 and reach 2.8 by the end of 2016.

    RBC is the third bank to predict a pending rate cut from the central bank, with both CIBC and TD Bank making the same claim.

    “The Bank of Canada unexpectedly cut the overnight rate by 25 basis points in mid-January, on the negative impact of lower oil prices on inflation and the real economy. At that time, it also signaled that it saw most of the risks to inflation to be tilted to the downside,” TD’s economic update, published in late January states. “Given our weaker oil price, inflation, and output forecast relative to the Bank, it therefore holds that we expect some of those downside risks to be realized.

    “As such, we forecast that the Bank of Canada will cut the overnight rate by an additional 25 basis points at its next fixed announcement date in March.”

    Robert Floris is an independent mortgage broker with Mortgage Architects  In Hamilton Ontario

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