Benjamin Tal, CIBC’s Deputy Chief Economist, spoke at the National Mortgage Broker Conference in Toronto last week. He predicts that the Bank of Canada is at or near the end of this series of rate hikes aimed at squashing inflation that has been rampant around the world and in Canada for two years.
Rate Cut Projections
Financial experts, since the start of the year, have anticipated rate reductions both in Canada and the U.S. However, the Bank of Canada, after maintaining consistent rates from January to April, opted for hikes in June and July. With another potential increase looming, Tal candidly expressed concerns at the 2023 National Mortgage Conference in Toronto. He emphasized the significance of timely cuts, stating, “If the Bank of Canada doesn’t cut interest rates, it’s not going to be pretty.”
Economic Forecast and Historical Norms
The current 5.00% overnight target rate is expected by Tal to settle around 3% in the foreseeable future. Reflecting on Canada’s economic trajectory, he shed light on the pandemic’s 0.25% benchmark rate, terming it a “mispricing of loans.” He reiterated that the 3% overnight rate is consistent with historical standards.
Mortgage Brokers in a Hig h-rate Environment
Tal’s optimism shines when discussing mortgage brokers’ future, highlighting that business opportunities remain abundant even amid elevated rates. This is especially relevant considering the consistent real estate demand and the prevalent housing inventory shortage. Understanding Canada’s real estate market can provide more insights.
Inflation and The Bank’s Approach
The Bank of Canada’s strategy to combat inflation is under the microscope. Tal provocatively suggests that a 4.5% halt would’ve been optimal if decisions were AI-driven. But human-led decisions, with their inherent biases, push for guarding against recessions rather than permitting inflation to exceed 2%.
Consumer Protection and Financial Buffers
The protective financial cushions, once shielding consumers from abrupt rate hikes, are depleting. With consumers increasingly relying on credit cards and loans, the effects of rate reductions become nuanced. Tal critically observes rising food prices, drawing attention to the Bank’s perception of inflation.
Mortgage Interest: A Two-sided Coin
Tal elaborates on mortgage interest’s contribution to the consumer price index. The rate hikes have induced a 30% surge in mortgage interest payments year-over-year. But, contradictorily, Tal posits these aren’t inflationary but “disinflationary.”
Nearing the End of Tightening?
With challenges aplenty, Tal’s outlook remains positive. He asserts the imminence of this rate-hike cycle’s peak, anticipating a more stable monetary environment soon.
The article showcases Tal’s adept understanding and provides a lucid glimpse into Canada’s monetary future, emphasizing the importance of informed decision-making.