Canadian Interest Rates to Remain Steady, Experts Agree

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By Elli Davis, November 10, 2009

Rates to Remain Steady by Chris Maureen Gerty

The Bank of Canada is sticking to its commitment to hold interest rates at the current level of 0.25% after the latest rate announcement at the end of October. Experts agree it is not the time to change it.

The rate has being maintained at record lows for half a year now and the Bank wants to keep it static at least till June 2010. Low interest rates are the key factor for the housing market rebound and still fuel the solid number of sales realtors are experiencing all around Canada.

However, there are already voices calling for an interest rate hike. Huge bubbles around the world made people cautious. Many feel the best way to stop the bubble before it bursts is to raise interest rates. Despite rising prices and a faster pace in the real estate business, most of the experts say it is not the time to raise rates.

The most important reason is the actual growth of the GDP, which doesn’t seem to be following the BoC predictions of a 2% rise in the third quarter of 2009 (August growth was -0.1%). Moreover, the trade deficit is at a record high, what signals a more arduous recovery for domestic industry.

Also, financial indicators don’t show any signs of growing leverage (the risky use of debt to raise return on investments). Inflation is close to -1%, leaving all fears behind for now. Finally, the feared housing market crash doesn’t seem to be in evidence. Prices are rising, but the inventory flow remains steady; the prices are following a sharp rise in real demand, which was pent up during last winter’s slowdown.

It’s more than probable than the Bank of Canada will not break its promise and will hold down interest rates for at least eight more months. Encouraging news for home buyers!