The Bank of Canada (BoC) could move to hike interest rates in less than a year, pointing to Canada’s strong economy and pressures from the Greater Toronto Area’s hot housing market.
Governor Stephen Poloz announced that the bank is keeping its benchmark rate unchanged at 0.5% for now, where it has sat since July 2015. Poloz, however, upgraded his growth forecast for the Canadian economy this year to 2.6%, up from a 2.1% forecast made in January.
Poloz has faced pressure recently on policy, with economists saying that the time for emergency-era rates is behind Canada. Especially as a potential housing bubble continues to develop in the Greater Toronto Area.
“Residential investment has also been stronger than expected,” the bank said in its release Wednesday. “Employment data have been robust, although gains in hours worked are still soft.”
Poloz and his team went on to voice concerns about Toronto's housing market, where prices in the past 12 months have seen a blistering 33% increase. In February, that pushed the average home in the GTA to $916,567 from $688,011 the previous year.
“Price growth in the the region has accelerated and seems to have entered a phase in which speculation is playing a larger role,” the bank said in its Monetary Policy Report.
Further in the report, the bank said it now sees the Canadian economy reaching full capacity in the first half of 2018 — a mark whereby low rates would no longer be justified.
The BoC last raised rates in September 2010, when the benchmark was moved to 1%. In 2015, Poloz moved rates lower in response to a crash in global oil prices that threatened Canada’s economy.
Poloz was cautious Wednesday about committing to a rate hike. He said it was “too early” to call the recent economic gains sustainable, ruling out any chance of an increase in 2017 (for now).
“The Bank’s Governing Council acknowledges the strength of recent data, some of which is temporary, and is mindful of the significant uncertainties weighing on the outlook,” the bank said in a release.
The next interest rate announcement is scheduled on May 24, where the bank will likely add clarity to any timing on a rate hike next year.