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1 Nov

Forecasting rates


Posted by: Chris Cavaghan

Last week I sat in on a Firstline seminar and had the chance to listen to Benjamin Tal, the senior economist for CIBC. He made some very good points about the mortgage market, the global economy and where it is all headed.

He started off by saying the international markets used to affect our economy 2-6 months after the fact. That has completely changed and we are seeing the affects almost instantly.

Some the factors from other countries that are affecting us are from China, Europe and of course, the US.

China has increased their rates recently to slow down their economy. Their debt is actually quite higher than they are showing. They were using some creative ways to get government funding. Now the government doesn’t want it to get out of hand so they increased rates.

The US is showing some positive news but the numbers may not be as accurate as they are saying.

Most of the improvements in the economy have been due to the cash the Fed is injecting into the markets. There is not a lot of improvement in the economy and it will mostly likely stay that way for another 12 months so the Fed will have to continue to inject cash until the economy gets it footing.

The States is saving more and the debt to income ratio is falling which is good. Their income seems to be increasing as well but it is not from wages, it is from tax deductions.

Europe is still having their problems as well and it is not going to be over soon.

These factors will be affecting our markets and it will be very difficult for the Bank of Canada to increase rates until these international economies start to recover on their own without continuous help from their governments.

The bond market, which directly affects fixed rates, will also see the affects of these situations that are occurring in other countries and should stay low as well.

He concluded by saying that rates, both Prime and fixed, will be holding steady with minor increases over the next year.

Any questions of comments please feel free to let me know.