The Bank of Canada once again opted to maintain its target for the overnight rate at 1 per cent. In its accompanying statement, the Bank highlighted that inflation continues to move below the Bank's 2 per cent target due to significant excess supply in the Canadian economy. It also noted that the risks to inflation appear to be to the downside, meaning it sees the risk of continued below target inflation as a more likely outcome than a rise in inflation. This, along with the Bank's expectation of a "soft landing" in the Canadian housing market, suggest that monetary policy will remain highly accommodative.

The Bank of Canada is currently projecting that excess supply in the Canadian economy will be eliminated sometime in mid-2015. Keeping in mind that the Bank has spent the past several years pushing that date back, if the Canadian economy does accelerate as most expect in 2014, a gradual rise in short-term interest rates will follow. Importantly, an uptick in Canadian economic growth next year will most likely be the result of stronger external demand, particularly from a resurgent United States.  However, stronger growth in the US economy will also put upward pressure on long-term yields, lessening some of the urgency for monetary tightening. For that reason, we expect that eventual Bank of Canada tightening will occur very slowly, beginning with a 25 to 50 basis point increase in the overnight rate in 2015.

Information provided by www.bcrea.bc.ca

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The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent. In its accompanying statement, the Bank highlighted that an uncertain global economy is delaying an expected rotation of growth in Canada toward exports and investment. This means that the burden of economic growth will remain on households at a time when most households are deleveraging and looking to slow consumption. All of this adds up to a Canadian economy that will grow below trend in 2013, likely at a rate of around 1.5 per cent.  Below trend growth will translate to continued subdued inflation, which the Bank anticipates will return slowly to its 2 per cent target in 2014. As for the Bank's tightening bias, language around the withdrawal of monetary stimulus has been significantly moderated. The Bank anticipates a gradual normalization of policy interest rates as conditions for inflation, growth and household debt normalize.

Rising long-term Canadian interest rates, along with somewhat soft economic growth through the first half of 2013, have taken some urgency out of future monetary policy tightening. In particular, higher long-term rates will further slow growth in household debt via higher mortgage and other key lending rates which will allow the Bank to push increases in its overnight out to late 2014 or early 2015.

Information provided by www.bcrea.bc.ca

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New Bank of Canada Governor Stephen Poloz stuck to the status quo this morning in his first interest rate decision, leaving the Bank's overnight target rate at 1 per cent.  The Bank expects growth in the Canadian economy to be "choppy" in the near term owing to unusual temporary factors such as flooding in Alberta, but overall its outlook for economic growth remains largely unchanged from April's projection of 1.8 per cent real GDP growth in 2013 and 2.7 per cent growth next year. The Bank expects inflation to remain subdued in the near term due to persistent excess capacity in the Canadian economy, but still expects inflation will return to its 2 per cent target in mid-2015 as previously forecast. Notably, the Bank's previous recurring statement regarding withdrawal of monetary stimulus has been altered and perhaps softened to "Over time, as the normalization of these [economic] conditions unfolds, a gradual normalization of policy interest rates can be expected."

All in all, not much has changed since the previous Bank of Canada announcement in May. Economic growth, though still not robust, has been marginally better than expected. Inflation continues to trend below 2 per cent and the labour market is adding jobs at a modest pace. Canadian household are still carrying too much debt, but are adding to that debt at a slower rate. Long-term interest rates have risen substantially in recent months, which may have some negative impact on growth, but remain very low in historical terms. Therefore, we continue to forecast no change in the Bank of Canada's target rate until next year.

Information provided by www.bcrea.bc.ca

Canadian housing starts held steady in June, registering just under 200,000 unit at a seasonally adjusted annual rate (SAAR).  The trend in Canadian new home construction remained relatively unchanged as well, albeit up slightly to 184,500 units SAAR over the past six months.  On a year-over-year basis, housing starts were down 10 per cent.

New home construction in BC urban centres jumped close to 40 per cent month-over-month in June to a seasonally adjusted annual rate of 29,346 units. On a year-over-year basis, total starts were 13 per cent lower than June 2012. Single-detached starts were 2 per cent lower over last year, while multiples declined 17 per cent. For the first six months of 2013, total BC housing starts are down 17 per cent and are trending at a rate of 23,400 for the year.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were 14 per cent lower compared to last year with multiple starts off 17 per cent while single-detached starts were up 1 per cent.  New home construction in the Abbotsford CMA posted a 350 per cent increase in June compared to a fairly weak 2012 due to strong growth in multiples.  Housing starts in the Victoria CMA were down 43 per cent compared with June 2012 as a sharp decline in multiple starts offset a 13 per cent gain in new single family units. Housing starts in the Kelowna CMA were 29 per cent higher year-over-year as a result of strength in both the single family and muliple sector. 

Information provided by www.bcrea.bc.ca

Canadian employment was virtually unchanged in June following a blockbuster month of job growth in May. Total employment grew 1.4% over the past 12 months and the unemployment rate remained at 7.1 per cent in June. For the first half of 2013, Canadian employment growth averaged 14,000 jobs per month.

Some long overdue good news for the BC labour market in June as employers added close to 9,000 total jobs including a remarkable 21,600 full-time positions.  A decline in part-time work partially offset the total employment gains. The unemployment rate in BC fell 0.4 points to 6.3 per cent.

In the US, firms added 195,000 jobs to payrolls, soundly beating market expectations of a 165,000 gain.  The US unemployment rate held steady at 7.6 per cent.

Information provided by www.bcrea.bc.ca 

Today's interest rate announcement will be Mark Carney's last as Governor of the Bank of Canada, however that is the only meaningful change as the Bank once again opted to leave its overnight target rate at 1 per cent.  The Bank expects first quarter growth to be stronger then its original projection of 1.5 per cent, and forecasts that the remainder of the year will remain in line with its April projection. The Bank expects inflation will remain subdued before rising to 2 per cent in mid-2015 when the economy returns to full capacity. The Bank once again stated that the considerable monetary policy stimulus currently in place will remain appropriate for an unspecified "period of time" after which some withdrawal will likely be required.

The Bank of Canada remains caught between the rock of a muddling economy and the hard place of elevated household debt burdens. If the second half of this year unfolds as most forecasters expect, economic growth should accelerate, helping inflation to get back on a path to the Bank's 2 per cent target. However, if that scenario does not unfold and the economy continues its slow growth trend, the "period of time" the Bank has noted may stretch out longer than the Bank currently has in mind. Our own analysis of the Canadian economy suggests there will not be any movement on interest rates until late 2014.

Information provided by www.bcrea.bc.ca

Canadian building permits rose 8.6 per cent in March to $6.5 billion, the third consecutive monthly advance. Much of the increase was a result of large increases in the Ontario and Alberta non-residential sector which pushed non-residential permits 19 per cent higher while residential permits posted a 1.7 per cent increase.

After a significant decline in February, BC building permits increases a modest 1.7 per cent in March, with balanced contributions to growth from the residential and non-residential sectors. However, on a year-over-year basis, total building permits were close to 7 per cent lower.

Looking at permit activity in BC's four major census metropolitan areas (CMA),  permits rose 43 per cent in the Kelowna CMA from February, but were 14 per cent lower year-over-year. In the Abbotsford-Mission CMA, permits jumped 70 per cent on a monthly basis but were 21 per cent lower than March 2012. In the Vancouver CMA, permits fell 12 per cent on both a monthly basis and year-over-year. Finally, in the Victoria CMA, permits more than doubled compared to February and were 9 per cent higher than March 2012.

Information provided by www.bcrea.bc.ca

The Bank of Canada kept its target overnight rate at 1 per cent this morning. In the statement  accompanying the decision, the Bank forecast that the Canadian economy will gain momentum through the year following a weak second half in 2012, but slow growth through the first half of this year will limit real GDP growth to just 1.5 per cent in 2013 before rising to 2.8 in 2014. The Bank's revised forecast means that the economy is now projected to return to full capacity in mid-2015, rather than in 2014 as previously predicted. A more persistent output gap will keep downward pressure on inflation, which is now expected to gradually rise to the 2 per cent target rate by mid-2015. The Bank continued to sound a much more dovish note on future rate increases, noting that the considerable policy stimulus currently in place will likely remain appropriate for "a period of time, after which some modest withdrawal will likely be required." 

With an expanding output gap and inflation trending well below its 2 per cent target, it is natural to ask if the next move by the Bank of Canada is a rate cut rather than the rate hike that almost all economists have penciled into their forecasts. However, unless the economy deteriorates much more or inflation trends much lower, the Bank is unlikely to lower interest rates since doing so would run counter to a year of loudly exhorting households to cut back on debt. Instead, the Bank will likely continue to use forward guidance about the need, or lack thereof, for future rate hikes in order to influence long-term rates and the Canadian dollar lower. The combined of effect of which should provide continued stimulus to the Canadian economy.

Information provided by www.bcrea.bc.ca. 

The Bank of Canada announced this morning that it is holding its target for the overnight rate at 1 per cent.  The Bank sees economic growth in Canada picking-up through 2013, as growth in exports and business investment offset a slowdown in household spending and residential construction.  On inflation, the Bank noted that low core and total CPI inflation have been more subdued than the Bank projected, owing to significant excess capacity in the economy. Given low inflation and what the Bank terms a "constructive evolution of imbalances" in the household sector (meaning a lower pace of debt accumulation), the Bank has walked back its previous rate tightening bias stating that, "current levels of monetary stimulus will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required."

Weak economic growth through the second half of last year will likely bleed into the first half of 2013, which means a continuation of subdued inflation of just over 1 per cent. In fact, the outlook for growth and inflation is weak enough that, if the Bank had not spent the last year voicing concern over the perilous state of household finances, a 25 basis point cut in the Bank’s overnight target would be increasingly likely.  Instead, the Bank will put a future rate hike on hold for the foreseeable future, with rates gradually increasing in 2014.

Information provided by www.bcrea.bc.ca

The Canadian economy grew 0.3 per cent in November, following 0.1 per cent growth in October. Production was higher in most industrial sectors with the main contributions to growth coming from manufacturing, oil and gas and mining. 

Our updated fourth quarter GDP estimate is currently reading just 1.1 per cent growth (at an annual rate), in-line with the Bank of Canada's most recent forecast. We anticipate that growth will continue to be modest through the first half of 2013 before accelerating in the second half of the year and into 2014.

Information provided by www.bcrea.bc.ca 

It may be a new year but it is the same story this morning from the Bank of Canada which once again held its target for the overnight rate at 1 per cent. The statement released in support of the interest rate decision noted that the global economic outlook is weaker than the Bank previously projected, though risk of a severe external shock to the economy has diminished. As a result, the slowdown in the Canadian economy in the second half of 2012 was more pronounced than the Bank had anticipated. The Bank has revised its estimate for economic growth in 2012 lower, to 1.9 per cent, and now forecasts 2 per cent growth in 2013 before an acceleration to 2.7 per cent in 2014. Importantly, the Bank has also shifted its expectation that the economy will reach full capacity out to the second half of 2014. On inflation, the Bank expects growth in consumer prices to run significantly below its 2 per cent target for much of 2013 before gradually rising to target in 2014.

Following two years of overly optimistic forecasts, the Bank has struck a slightly more dour tone in its outlook. The gloomier growth forecast and positive signs that households are reigning in household debt have prompted the Bank to revise its language on the gradual withdrawal of monetary stimulus.  In its concluding statement accompanying the rate decision, a key focus of monetary policy watchers over the past year,  the Bank continued to note that a withdrawal of stimulus would likely be required over time, but that the timing of any such withdrawal is less imminent than previously anticipated. This strongly suggests that interest rates will remain constant at 1 per cent for all of 2013.

Information provided by www.bcrea.bc.ca