Canada’s Housing Boom Expected to Spark Rate Rise

In Canada, which was hit with an income shock after the downturn in prices of oil and other commodities, low rates have resulted in an extended period of loose money that has fueled a housing boom in pockets of the country.

..  even though inflation—at an annualized 1.3% rate in May—remains well below the central bank’s 2% target, and wage growth remains stubbornly low.

.. TD Securities, said it believed the central bank would hold off until October, arguing a rate rise now could hurt the Bank of Canada’s reputation as an inflation-targeting bank.

.. Six of the dealers surveyed added they expect Canada’s benchmark interest rate to hit 1% by the fall.

“Inflation isn’t pressing, but the economy is showing that it can easily live with interest rates a bit higher than they are at present and still generate solid growth,” said Avery Shenfeld, chief economist at CIBC World Markets.

.. Mr. Poloz said rate cuts delivered in 2015 have worked in helping the economy adjust to the income shock from lower energy prices, and that spare labor and production capacity in the economy was being “steadily” absorbed.

.. Mr. Shenfeld said one factor that may be driving the Bank of Canada is more concern about financial stability than it is letting on, highlighted by record levels of household debt and worries about a housing crash in Toronto and Vancouver.

“Why encourage excesses of debt?” he said. “We’ll trade off a bit of a delay in getting to 2% inflation if that gives sufficient benefits in financial stability.”