Canadians could see record low interest rates until 2022

With the Bank of Canada to decide on interest rates this Wednesday, just about everybody agrees rates will stay at the record low 0.25%. But for how long can we expect rates to remain this low?A new survey of 15 economists from Canadian banks, financial institutions and academia suggest that 0.25% could be around for more than a year, maybe two.Almost half of the economists in global comparison site Finder.com’s survey see rates holding for more than a year until the end of 2021, while 26.67% believe rates will hold until the first half of 2022 and 13.3%, the second half of 2022.The Bank of Canada has cut its key overnight interest rate three times since the crisis started and Governor Stephen Poloz suggested last week that even after the pandemic ends rates will stay low.“We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really but they’re just not going to be like where they were 20 years ago or 30 years ago,” Poloz said.

Though the Bank has maintained that 0.25% is the effective lower bound, one economist in Finder’s survey thinks it should experiment with smaller than usual cuts, without reaching 0%, to see if this stimulates the economy.“The Bank is worried about pushing below its effective lower bound. I think it should be unconventional in these unconventional times and try a 10 bps decrease and see what happens. It can move incrementally until it really does reach the lower bound,” said Moshe Lander, professor of economics at Concordia University.

Here are some of the survey’s other findings

Real estate

There’s been a lot of debate over how the coronavirus crisis will impact the housing market, but most agree we are in for declines. Averaging out the responses of the economists on a percentage drop in Canada’s 10 biggest markets, came up with these predictions.

• The biggest drops are seen in Vancouver and Toronto at 12.65% and 12.55%, respectively.

• Cities set for declines between 8% and 10% include Montreal (9.55%), Calgary (9.40%), Hamilton (8.70%), and Edmonton (8.60%)

• More modest declines are expected for cities like Ottawa (6.40%) Quebec City (5.40%), Halifax (4.90%) and Winnipeg (4.70%).

Border closures

The majority of the 15 panelists say that Canada would open its border to international travellers this year. Only two said borders will remain closed until 2021. Half of the panel believes borders will open within two to four months and 21% believe they will open sooner, within one to two months.

Six-month economic outlookThe panel, understandably, was overwhelmingly negative about the outlook, Finder said. About 46% were positive on home affordability (that’s up from 9% at the beginning of the year), but the majority, 73%, were negative on wage growth and household debt. Almost half were positive about employment as the economy gradually reopens.The good newsEighty per cent of the economists believe it is unlikely that this recession will evolve into a depression, because of “massive stimulus efforts.”“Ongoing reopening plans suggest a controllable second COVID-19 wave which could keep away the severe option of going back in quasi-complete shutdown mode like we observed in late March,” said Sébastien Lavoie, chief economist at Laurentian Bank.

Written by Pamela Heaven for Financial Post

Canadians could see record low interest rates until 2022

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