22 January 2018

And here’s the evidence from Macquarie:

• During the previous three years, almost 30% of nominal GDP growth has come from residential investment and auto sales, which is 50% higher than during the previous similar periods.
• The wealth effect from growing home prices has led to almost 40% of nominal growth in GDP over the past three years. It’s 2-4 times higher than previously.
• In the same time, fixed business investment and exports have faced difficulties, reducing the ability for a GDP to gain the pace. It’s also not what we saw during the similar periods in the past.

In Macquarie’s opinion, new mortgage rules and stress-tests will only increase the influence. The new rules in isolation may cut buyers’ maximum purchasing power by 17%. Together with the rate hikes, it will raise the number to 23%.

Governor Stephen Poloz said that high household debt could make the cooling effect from the rate hikes harder. According to Doyle, the impact of last year’s increases will show itself fully in 18 months.

“Based on all this, we can say that the BoC continues the hike period despite the uncertainty concerning the severity of previous tightening,” Macquarie said. “As a result, we can see stronger risks of policy error.”

Macquarie predicts only one more rate increase this year: in April or July.