In addition to announcing The Bank of Canada’s overnight rate on April 24, Bank governor Stephen Poloz presented the quarterly Monetary Policy Report from the Bank of Canada’s Governing Council, containing the Bank’s base-case projection for inflation and growth in the Canadian economy, and its assessment of risks.
Among other points, Poloz addressed The Bank’s views on oil and housing.
“Canada’s oil sector remains under considerable stress. Since January, oil prices have firmed, including those prices received by our western producers,” said Poloz. “But limited access to markets remains a significant source of drag and uncertainty. This has led to another downward revision in investment intentions in the sector. Some of this downgrade is likely more structural in nature, as it represents the continued adjustment of the sector to global oil prices of US$50 to $60 per barrel, rather than the much higher prices of five years ago. This adjustment process is also being reflected in wages and other costs, and in housing market developments in Alberta.
“Importantly, as investments in the oil patch are pared back, Canada’s growth slows. But, when those investment levels stop falling, Canada’s growth will pick up, even if oil sector investment does not, as other areas of growth come to dominate the data. We have been monitoring developments in the housing market very closely in order to understand how the effects of local tax changes, changes in mortgage guidelines and past rises in interest rates would play out. In part, the analysis is complicated by the adjustment of previously frothy markets — the greater Toronto and Vancouver areas — to a significant revision in price expectations. This means that as the situation stabilizes in Toronto and Vancouver, the Canadian housing sector should return to growth overall later this year.”
Copyright Postmedia Network Inc., 2019
