Saturday, September 27, 2014

Interest Rates will climb...

We feel TD Canada Trusts' rate hike prediction is likely, given that the hike "may occur" in the next 9 months.

In the spring, TD Canada Trust predicted a 0.50% increase in the Bank of Canada's rate, but that didn't occur.

Just like any prediction with interest rates, it really could be anyone's guess. But in this instance, we tend to agree with TD that the rates will climb in 2015.

Here is the recent article from Mortgage News:

The end of record-low rates is nigh, according to one major bank, which has taken a stance and predicted when the Bank of Canada will raise its long-standing overnight rate.

“Firming price pressures and strengthening labour markets are consistent with a gradual path to normalizing interest rates,” TD Bank’s quarterly economic forecast, released Thursday, states. “We see the Bank of Canada beginning to raise its overnight rate in mid-2015.”

The overnight rate has been held at one per cent since September 8, 2010.

“The Bank remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks,” the Bank of Canada said in its most recent statement about the overnight rate, released in early September.

TD Bank, however, predicts the short term rate will hit 2 per cent by the end of 2016. The bank believes even a slight increase will put a limit on household spending, as debt-to-income levels are still around 165 per cent.

Of course, it wouldn’t be an economic forecast if the bank didn’t mention the current state of the housing market, which it still holds a conservative stance on.

“In the near term, the housing market and household debt levels present an upside risk to the forecast,” the statement says. “Borrowing rates remain at record lows and housing momentum has stayed strong.

“Over the medium term, we still expect a cooling trend, consistent with a gradual increase in both trend inflation and interest rates.”