Festival condos project.House prices have fallen by 6% and will fall by anoth...

Festival condos project.House prices have fallen by 6% and will fall by another 20%! Toni Gravelle, deputy governor of the Bank of Canada, said borrowing costs need to rise quickly to more normal levels to bring inflation back to target. The current policy rate of 1% is still “too exciting”.Please Visit: Festival condos project to Get Your VVIP Registration Today!

In a speech entitled “perfect Storm” on Thursday, Gravelle reiterated that interest rates need to rise further to a neutral range of 2-3 per cent, which will neither stimulate nor curb economic growth. To cool Canada’s domestic inflation and rebalance the economy.

“We are taking action to quickly normalize our policy interest rates and are prepared to take strong measures if necessary,” he said. ”

Whether the central bank will push policy rates above the neutral range will depend largely on the property sector.

“interest rates are rising to slow economic growth by raising borrowing costs,” Gravelle said in a speech hosted by the Quebec Association of economists in Montreal. This tends to slow the growth of industries such as real estate. ”

“but this time, the slowdown is likely to widen because highly indebted households will face higher debt servicing costs and are likely to reduce household spending more than in the past.”

He pointed out that by the end of 2021, Canada’s household debt-to-income ratio had reached a record 186 per cent.

There are signs that Canada’s hottest property market has begun to cool down as interest rates rise.

Gravelle pointed out that if price pressures start to reverse, or if debt-laden Canadian households cut spending more than expected, the Canadian central bank may suspend raising interest rates in a neutral range.

Conversely, if global supply chain problems persist, or if some parts of the domestic economy end up less sensitive to higher interest rates, the vice president also makes a case for raising borrowing costs above the neutral range.

The Gravelle said the property market could be more resilient than expected, which could prompt the central bank to raise interest rates above 3 per cent.

“specifically, we can also get stronger population demand from immigrants. Or some of the growth in housing demand we saw during the outbreak may be more stable than predicted in terms of larger housing and suburban housing. ”

“We are not following a predetermined policy path to raise interest rates to reach a specific ‘terminal’ rate,” Gravelle said. Our decisions are not made by autopilot. ”

Gravelle’s speech is by far the clearest explanation of what the central bank will focus on when deciding on the speed and trajectory of raising interest rates. The central bank will also keep a close eye on changes in commodity prices and consumer spending, he said.

Simon Harvey, head of foreign exchange analysis at Monex Canada, said the housing market was more likely to be a constraint than a driver of higher interest rates.

“when I look at house price growth and price-to-income ratio, it doesn’t make sense at all,” he said. At some point, raising interest rates will have a cooling effect. ”

The comments will strengthen market expectations of a second rate hike by the central bank at its next meeting on June 1, after the Canadian central bank announced in April that it would raise its benchmark interest rate by half a percentage point to 1 per cent, the latest measure to curb high inflation.

Investors believe Canada’s benchmark interest rate will rise above 3 per cent over the next 12 months, one of the most aggressive tightening cycles since the end of the last century.

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