Friday, November 16, 2007

Lower Interest Rates will fuel to Vancouver's Real Estate Market.

Interest rate-cut chorus grows

Globe and Mail Update

A growing number of economists now expect the Bank of Canada to cut interest rates in the coming months as a strong dollar takes a bite out of trade.

Weaker-than-expected reports on international trade and manufacturing over the past week show the Canadian economy likely withered in the third and fourth quarters, they say.

At the same time, the strong currency is reducing import prices and causing retailers to cut prices on their goods — putting a damper on inflation.

“We now expect that the Bank of Canada will need to cut its policy rate by 25 basis points on each of its next four decision dates through April,” said Ted Carmichael, chief economist at J.P. Morgan Securities Canada on Friday. That would bring the rate to 3.5 per cent from the current 4.5 per cent.

Royal Bank of Canada and UBS AG were the latest to weigh in on Friday, predicting lower interest rates in the next months.

“Net trade, thanks in part to the past decline in U.S. dollar versus the Canadian dollar, is going to weigh heavily on Canadian gross domestic product growth in the second half of this year and beyond,” it said in a note.

“With that in mind, the BoC is laying the foundations for an eventual rate cut by steadily increasing the concern over the impact of Canadian dollar strength on output and inflation.”

UBS strategists, meantime, expect the central bank to reduce rates by 50 basis points next year.

Their predictions come in the same week that Bank of Canada deputy governor Paul Jenkins warned that if the dollar stays high, economic output and inflation would be “significantly” lower.

The Canadian dollar traded at $1.0301 Friday in the most volatile week the currency has had in at least a decade.

The central bank's next meeting is Dec. 4.

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