OECD is very optimistic about Canadian economy. It thinks that Canada is heading towards the right direction and it will get out of the current economic turmoil soon. It thinks that Canadian economy will attain its glorious 2% inflation target by the end of 2015.
In its report OECD Economic Outlook, Volume 2013 Issue 2; it has assumed that in order to avoid inflationary pressure (yet to arrive in 2015) the Canadian central bank should aim for a target overnight rate of 2.5% by the end of 2015. Not only by raising rates but the bank should take additional action to properly insulate the economy from any inflationary shock.
Now in Canada, Mr. Poloz (BoC governor) thinks in line with OECD report that the inflation will reach 2% by the end of 2015. He added that this projection path is balanced. Speaking in terms of risk – he thinks that this projection is not biased, neither in favour of deflation nor inflation. So, without taking any drastic action the inflation will remain under control.
He thinks that the small businesses are still facing challenges in terms of financing. He did not appear to be in any rush to raise rate anytime soon. He is under the impression that high home prices did contribute in the higher household debt.
Poloz those said in the Senate.
Household debt will be slowly paid off once household income star to grow.
The governor was asked that the low rate policy did not work for Japan – how was he sure that it would work in Canada? He responded that although Japan did not flourished but it managed to stay afloat by keeping the rates low.
He did not hint any timing for rate hike but did indicate that a hike is likely in future.
In another report Fitch has pointed out that housing prices are too much overvalued in many Canadian cities. Overall it is 21% overvalued led by BC and QC where homes are 26% overvalued – it estimates.
The report did mention the work ‘soft landing’ despite of its strong assessment of the over-valuation.
We heard from various experts in these days and it appears that no one is sure how would it happen. They agree that something has to happen but do not have a clue what it would be!
So far, after a lot of reading and watching – the market is still clear as mud.
Let’s see what Mr. Flaherty has to say now.