Consumer price inflation in Canada rose sharply to 1.9 per cent in the 12 months to January, taking the rate to the midpoint of the bank’s 1-3 per cent target range. The annual rate in December was 1.3 per cent.

The increase, the highest since November 2008, is not worrying the bank, however, and it is not likely to trigger interest rate rises before Q3. Analysts had expected a rise to 1.8 per cent. Read more

Simone Baribeau

But it’s tightening standards anyway.

According to new rules released today, borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. Canadians also won’t be able to take out home equity loans for the last 10 per cent of their home’s value. And those who buy investment properties will need to put down 20 per cent in order to receive government-backed mortgage insurance.

Still, Jim Flaherty, Minister of Finance, assures Canadians that there’s no housing market bubble, even as prices break new records in some cities. Read more

Simone Baribeau

The Senate banking committee briefly broke into rumblings about 20-somethings with clever ideas being able to subvert the intent of Congressional laws on complicated banking matters.

It’s no reason not to pass legislation to ban proprietary trading, Paul Volcker said. “Yes, banks have 26-year-olds with a whole lot of mathematical training and all the rest, but the supervisors need to hire some 28-year-olds.”

Paul Volcker, in both his written testimony and during the question and answer period, said: “Bankers know what proprietary trading is, don’t let them tell you otherwise.”

Mr Volcker was also questioned on whether the US could learn anything from Canada, which had been able to avoid the worst of the housing crisis, a topic explored by the FT last weekRead more

Simone Baribeau

The Bank of Canada put out its quarterly Monetary Policy Report. The outlook for Canada was little changed from October, with the economy expected to return to full capacity in the third quarter of 2011.

And a note of Canadian pride over how well the country has withstood the global recession seemed to seep into the report. Read more

Canada’s central bank has maintained its overnight borrowing rate at 0.25 per cent, as expected, and reaffirmed its commitment to keep rates at this level until the middle of this year. Also unchanged are the bank rate, at 0.5 per cent, and the deposit rate at 0.25 per cent.

The Bank of Canada forecasts growth of 2.9 per cent in 2010 and 3.5 per cent in 2011, having contracted by an estimated 2.5 per cent in 2009. The previous growth forecast in October suggested a 2.4 per cent contraction in 2009, 3.0 per cent growth in 2010 and 3.3 per cent growth in 2011. Read more

Simone Baribeau

A Bank of Canada official earlier today sought to dampen concerns that the Canadian housing market be caught in the same type of bubble that threw the US into recession.

In the Bank of Canada’s view, it is premature to talk about a bubble in Canadian housing markets. Recent house price increases do not appear to be out of line with the underlying supply/demand fundamentals. Moreover, with housing starts below long-term demographic requirements, inventories are still declining. It is likely, though, that a significant part of the surge in housing sector activity is associated with temporary factors – notably the historically low borrowing costs, as well as pent-up and pulled-forward demand – which cannot continue to drive increases in house prices and activity. Thus, we see the housing market as requiring vigilance, but not alarm.

One measure of the “underlying supply/demand fundamentals” of housing is the amount home prices rise relative to rental prices. In normal times they rise at roughly the same rate. In the US, house prices rose over 100 per cent between 2000 and the peak of the housing market in 2007, according to the 20-city Case Shiller index, while rental prices grew just 24 per cent. By contrast, in Canada rental prices rose 11 per cent from 2000 to 2008, while the price of a houses in the Teranet 6-city composite index rose 85 per cent over the same time. Read more

Simone Baribeau

The Bank of Canada today released its semi-annual financial system review, finding that the Canadian financial system’s vulnerability to adverse shocks decreased modestly since its last report in June.

But the country – whose banks weathered the financial crisis without any infusion of government money – has not radically changed its conservative outlook. “Over the medium term, vulnerabilities associated with global financial and economic imbalances and household indebtedness will emerge as the most prominent risks to the Canadian financial system,” the report said. Read more

… and pledges to keep the target rate for overnight loans between commercial banks at 0.25 per cent till June, saying a strong dollar could harm economic growth. “Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010,” Bank of Canada Governor Mark Carney said in a statement.

The central bank will probably raise its key rate to 0.75 percent in the third quarter of next year and to 1.25 percent by the end of 2010, according to economists surveyed by Bloomberg News.