BMO believes there’s no need for the central bank to cut rates

Certain industry specialists say the Bank of Canada should cut its key lending rate again.

There are a few reasons which could make the BoC do it. The main one is a global economic slowdown.

However, BMO Chief Economist Douglas Porter believes there’s one strong reason not to do it so far.

“The main argument in favour of the Bank continuing the pause is the fear of causing another cycle of housing overheating,” – Porter says.

“The BoC rate cut may sound for potential home buyers as a call to borrow more”, - he noted.

In his opinion, a rate cut would go against the policymakers’ attempts to guide the Canadian real estate sector towards a soft landing instead of a crash.

“After years of efforts to direct the Canadian housing to the soft landing, the last thing we need is a new takeoff. We’ve learned that lesson in 2015,” – he adds.

Since 2016, which showed record home sales, all levels of government have implemented measures, aimed at cooling the hot markets, including foreign homebuyer and vacant-home taxes.

In addition to it, the BoC has raised its lending rate five times since the summer of 2017, and it will hardly change the direction.

According to Porter, those measures did help and cooled the prices growth to a certain extend. However, May sales showed a 6.7% annual increase, marking the largest gain in 3 years.

“Although prices vary all over the country, and many of the weakest markets (mostly, West regions) are stabilizing, the active markets remain robust,” - noted Porter.

“There’s no need for the Bank to cut the rate so far”, - he said.