Wednesday 18 April 2012



Bank of Canada sees 'modest' rate increase ahead
Bank says higher oil prices to depress demand for exports
Apr 18, 2012 10:59 AM ET 

The Bank of Canada hinted today a "modest" increase in interest rates "may become appropriate" if inflation rises over the medium term.
The central bank, in its latest monetary policy report, said the timing and degree of any increase "will be weighed carefully against domestic and global economic developments."
Global oil prices have increased by about 15 per cent from their trough in October 2011.
And while that's usually good for an oil exporting country like Canada, the bank said, the positive effects will be reduced, likely depressing demand for our non-commodity exports.
The economy is steadily gaining strength but is still being constrained from robust growth by heavy household debt, a strong dollar, soft export markets and weak employment growth, it said.

Home equity borrowing 'unsustainable'

In a special section within the report, the bank estimated that Canadians are borrowing on rising home values to an unsustainable degree.
Home equity lines of credit and mortgage refinancing has grown from about $8 billion in 2001 to $64 billion in 2010, with about half of that "equity extraction" going into consumption or to pay off other debt.
"Home equity extracted through additional borrowing cannot fund higher consumption indefinitely," the bank warns.
"Growth in residential investment, which is currently supported by very favourable mortgage financing conditions, is forecast to slow," it states, but the ratio of household spending to GDP will likely remain high.

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