Canadian rates could rise ‘well before the end of 2013’: report

Barbara Shecter, National Post
Friday, Sept. 7, 2012  (please read my comment at the end)

There are signs Canadians are listening to the urging of government and regulators to get household debt under control, and the Bank of Canada could respond by raising interest rates “well before the end of 2013,” according to a report released Friday by Moody’s Analytics.

“Should a stronger and more sustained improvement in economic growth commence, it will not likely be met with continued monetary accommodation. We expect the bank to start raising rates well before the end of 2013,” said the report written by Bodhi Ganguli, an economist on the international team at Moody’s Analytics.

The Bank of Canada held its benchmark rate at 1% in September, but, unlike the U.S. Federal Reserve, it has not hinted at further economic stimulus or pledged to hold rates at their current record lows through the end of 2014.

“With GDP growing broadly in line with the projections, the [Canadian central] bank remains relatively bullish on Canadian domestic demand,” noted the report by Moody’s Analytics, which is a sister company of the global ratings agency.

While it is still early days for the latest moves by Ottawa to cool demand in the country’s hot housing market and persuade Canadians to reduce household debt levels that far outstrip disposable income, there are signs restraint may be taking hold, according to Moody’s Analytics.

Following two months of strong growth, the number and value of Canadian building permits fell in July. On a seasonally adjusted basis, permits dropped 4.9%.

“While a single month’s data do not prove a trend, July’s numbers could signal slower growth in Canadian housing as builders respond to diminishing demand,” said the report, which notes that its commentary produced by Moody’s Analytics is independent and does not reflect the opinions of credit ratings agency Moody’s Investors Service Inc.

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