Thursday, November 22, 2007

CREA announces that the Federal Bank rate in Canada holds steady and could be coming down in the next month


CREA Article Bank rate in Canada holds steady in September
Spillover from sub-prime loans


The Bank of Canada kept its benchmark overnight lending rate steady at 4.5 per cent on October 16th. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 4.75 per cent.


The Bank announcement indicated that economic growth has been stronger than previously expected, but will slow next year by more than it projected in July. It emphasized that weakening exports are anticipated to be drag on Canadian economic growth due to slowing U.S. economic growth and a stronger Canadian dollar.


The Bank also said that Canada's domestic economy remains strong, but that weaker economic growth next year will cause inflation to ease back to the two per cent mid-point of its inflation target. The Bank of Canada sets interest rates in order to contain inflation at between one and three per cent.


In line with its new forecast for economic growth and inflation, it said "the Bank judges, at this time, that the current level of the target for the overnight rate is consistent with achieving the inflation target over the medium term."


"Financial markets widely anticipated the decision by the Bank of Canada to hold interest rates steady," said CREA Chief Economist Gregory Klump. "For the second time in as many months, the Bank made no mention of the need for further interest rate increases. This provides a signal that further interest rate increases are on hold until the outlook for economic growth becomes clearer." The next rate announcement is scheduled for December 4th.


When the Bank decided to hold interest rates steady on October 16th, the advertised conventional five-year conventional mortgage rate stood at 7.19 per cent – up 0.24 per cent over the peak reached last year. Competition among mortgage lenders remains stiff, which continues to help many borrowers negotiate discounts of one per cent or more off advertised rates.


An increase in interest rates was factored into the CREA MLS® 2007 market forecast issued in August. "Sales broke all previous records in the first eight months of 2007, which will push annual MLS® home sales activity to new heights this year and reach the second highest level on record next year. Prices are also forecast to continue rising over the next two years," Klump added.


Source: Canadian Real Estate Association (CREA)


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Mark



A. Mark Argentino
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