No Surprise, Bank Of Canada Raises Rate

We chatted about this on our first weekly video of 2018 yesterday.

If you want the full frontal, you can see it all here: http://www.bankofcanada.ca/wp-content/uploads/2018/01/mpr-2018-01-17.pdf.

Here is what I think: The Bank of Canada is looking fully in the rear view mirror and projecting that forward, hoping growth will continue, albeit to a lesser degree and also hoping that the risks that they have identified don't play out to any great extent. That concerns us and raises our risk awareness.

They have identified that the consumer is vulnerable and that higher debt service costs will be a problem for indebted households, slowing the consumer down.

The green bit is the shrinking of the consumer impact on the economy. 

The wild card question is: how might this effect the housing market with all the other constraints (new lending requirements: stress-tests, etc.)? Certainly for those who can no longer afford to service their debt, they may need to consider an asset sale. If all that they have is their home, that will potentially exacerbate the issue. Throw in all the new, unsold development and the boomer looking to downsize or cash in and that could be enough to push the housing market over the cliff, if they all race to the exits at the same time.

Of course, NAFTA part 2 or no NAFTA at all will likely also apply economic brakes. The recent strength of the $C is also a factor (exports become more expensive).

As I stated earlier, the BOC has all of this considered in their assessment of risks to their outlook, but if they all start to come together simultaneously, it could spell disaster.

Remember, as the 2 year bond yield and 30 year bond yield spread (differential) narrows toward 0 (it is at 0.57% now), the risk of a recession rises. So we will also have to keep an eye on that:

Stay Tuned!