Interest Rates may decrease; at least hold.
Why might the recent turmoil in the financial markets be good for home owners and buyers? See below:
TORONTO — The global financial turmoil that has rocked world financial markets may have a bright side for Canadians — it could end up keeping interest rates lower despite rising inflation, economists say.
With stocks under siege and the world’s central banks trying to calm markets down and prevent a global credit crunch caused in part by a battered U.S. housing sector, economists say the Bank of Canada will likely hesitate to raise borrowing costs in such a volatile environment.
“If anything, the turmoil might actually, possibly, lead to lower interest rates than would have otherwise been the case,” Doug Porter, a senior economist with BMO Capital Markets, said yesterday.
“I’m not saying the Bank of Canada is necessarily going to go and cut interest rates, but they’re potentially less willing to rise interest rates amid this volatility.”
Like many economists, those at BMO had been expecting the Bank of Canada to raise rates in September to dampen inflationary pressures, possibly again in October and then in early 2008.
That would have raised borrowing costs in Canada by three quarters of a point, hiking payments for homeowners renewing mortgages, and consumers and businesses looking to borrow money.
“That series of potential rate increases is being put at least in some question because the bank may not be all that enthusiastic about raising interest rates when the financial markets are going through so much trauma,” Porter said.
That may only be short term, says David Wolf, an economist with Merrill Lynch Canada. Markets expect Bank of Canada governor David Dodge to keep rates on hold next month, but inflationary pressures are still building in the hot Canadian economy.
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