Aussie Rate Hike Puts Focus On BoC

Posted on October 7/2009 by

Australia surprised many by hiking interest rates yesterday. They’re the first Group of 20 country to do so since the global recession began.

That’s got some looking for parallels between Australia and Canada. One parallel is with housing prices—which have rebounded strongly in both countries.

A TD report yesterday said: “The Bank of Canada could very well follow suit [and raise rates] if Canadian real estate continues to heat up.” TD suggested the Bank of Canada is watching to see if Canada’s record-low interest rates may be too “stimulative”—particularly with respect to housing prices.

On the other hand, TD also says:

  1. Canadian economic fundamentals “will remain weak” into next year
  2. The BoC is more focused on inflation threats—which are presently minimal.
  3. The BoC views Canada’s recent strength in MLS sales as “temporary.”

In addition, while Canada’s economy is somewhat similar to Australia—we’re being weighed down by our neighbour to the south. By contrast, Australia has a more autonomous recovery already underway.

As a result, if this Australia news does raise the odds of surprise rate increases in Canada, it likely does so only marginally.

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