At a time when the head of the Bank of Canada believes interest rates have risen sufficiently, some economists even see a decline of as much as 3% in 18 months.
• Also read: By 2026, variable rate mortgage holders are in for a shock
• Also read: Interest rates that are too high: The mortgage bomb could explode within 3 years
• Also read: Quebec leads Canada in inflation for the fourth month in a row
Tiff Macklem, governor of the Bank of Canada, says tightening monetary policy is working. During a speech in Saint John on Wednesday, he acknowledged that interest rates could already be high enough to bring inflation back to target.
“We expect the economy to remain weak in the coming quarters, meaning further downward pressure on inflation is in the works,” he explained. “The excess demand in the economy that made it too easy for prices to rise has now disappeared,” added Tiff Macklem.
However, he reiterated that the central bank could raise interest rates further if inflation does not fall further.
Mortgage threat
“This tightening of monetary policy is working and interest rates may now be tight enough to return to price stability. But if high inflation continues, we are prepared to further increase our key interest rate,” said Tiff Macklem.
Due to the economic slowdown and the risk associated with mortgage renewals, the Central Bank decided to keep the key interest rate at 5% in its last two decisions.
Recall that in the country over the next three years, 60% of mortgage loans worth $ 400 billion should be renewed. In many cases, the extension occurs at a much higher interest rate than previously negotiated, resulting in a jump in mortgage payments.
Heading for a rate cut?
Some economists believe the Bank of Canada will even have to cut its interest rates, and do so more quickly than the market expects. This is the case of David Rosenberg, who reiterates that the bank must reduce its key interest rate by two percentage points to 3% in the next 12 to 18 months.
“It’s going to happen faster than most people think,” Rosenberg told Bloomberg in a telephone interview. “The economy will experience a severe recession. It will be late and they will have to struggle,” said the founder of Rosenberg Research, best known for predicting the 2008 United States housing crash.
Economists surveyed by Bloomberg last month expect interest rate cuts to proceed somewhat more slowly than Rosenberg predicted. The general consensus is that they will begin in the second quarter of next year.
–In collaboration with QMI Agency