Chris Lau - Seeking Alpha

Tuesday, June 01, 2010

Mortgage +1.75% Rate Increase in Canada?

In David Rosenberg's newsletter today, Rosenberg speculated a 175bps rate hike in Canada over a 16-month period. 

 Funding pressures are escalating again in the global banking sector as contagion risks intensify. What a wonderful environment for the Bank of Canada to be in as it contemplates its well telegraphed interest rate move — the Bank typically goes 175bps over a 16-month span and while Mr. Carney has no track record in a tightening cycle, let’s just say that the institution he presides over has never done anything less than 125bps. We shall see how market expectations are navigated in the press statement if the Bank does pull the trigger.
This forecast is not entirely impossible, given the over 6% GDP growth in first quarter:

Housing and related spending plus inventories accounted for 70% of total GDP growth in Q1.
Conversely, growth in housing may slow in the second half of this year:

we believe that we will see a major slowdown in activity in the second half of the year. We have seen signs already that housing activity is slowing especially in the face of higher mortgage rates in Q2 and this will continue into H2.