9 June 2011

In the same time, the bank predicts a significant shift in the structure of domestic growth.
Though consumers played an essential role in economic growth during coming out of recession, this time the key driver will switch from households to business sector. The deal is that consumer spending goes down and household debt levels increase. Meanwhile, corporate investments go up.
“At this moment, the uncertainty about the global economic outlook makes the Bank of Canada keep its key interest rate at 1%,” – Wright said.
According to RBC’s forecasts, the BoC may raise its key rate this autumn. By the end of 2011 overnight rate may reach the level of 1.75% and 3% by the end of 2012.
Such an increase will put even more pressure on Canada’s real estate market, which is already slowing because of decreasing home affordability level and high home prices.
“Higher interest rates could be balanced by growing income levels. In the end, it will lead to stable home price environment. It’s obvious that rates will go up soon, so we expect that the volume of home sales will fall and the prices will show very modest gains,” – Wright added.

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