No rate hike until 2015, says Budget Officer

Cheap money and low interest rates are likely to remain for another couple of years, Canada’s Parliamentary Budget Officer said in an economic forecast Monday, offering more bearish sentiment than the Bank of Canada.

The PBO said it expects a tepid recovery and that the Bank of Canada will likely maintain its policy interest rate at 1 per cent until the second quarter of 2015 before gradually, but steadily, raising its policy rate.

The PBO projects real GDP growth to slow to 1.5 per cent this year and remain below its potential growth rate until 2015. As the recovery takes hold, real GDP growth is projected to average 2.6 per cent over 2015 to 2017, the PBO forecast.
The Bank of Canada, while sharing a tepid view for 2013, sees growth accelerating quicker in coming years and is forecasting a 2.8 per cent GDP rise in 2014 and a 2.7 per cent rise in 2015.

The PBO noted that housing sector activity has moderated since the third quarter of 2012, citing Canada Mortgage and Housing Corporation data on housing starts, which were down by 39,600 units (annualized) in March 2013, or 17.7 per cent, from their September 2012 levels.

The watchdog also cited Canadian Real Estate Association data on sales activity, noting that activity in March 2013 was 15.3 per cent below year-ago levels, and transactions volumes being down in more than 90 per cent of all local markets.

The PBO made no forward projections about house prices or sales volumes.

SOURCE: Canadian Real Estate Wealth

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