Interest rate cut could bolster housing market: central bank chief

TORONTO Bank of Canada governor Stephen Poloz suggested Thursday that lower interest rates would not send home prices skyrocketing, but could instead help bolster consumer confidence and the housing market amid the spread of the new coronavirus.

Poloz told reporters following a speech in Toronto that the recent “shock” could weigh on people’s minds, possibly prompting them to be more cautious and hold off on making big purchases, a risk the central bank sought to get ahead of.

“My expectation is that we’ll see consumer confidence declining … as this unfolds, and that our hope is that lower interest rates will in some way mitigate that decline,” Poloz said.

Poloz’s comments came the day after the central bank cut its key interest rate by 50 basis points, to 1.25 per cent, citing the “material negative shock” the coronavirus has given the forecast for the global and Canadian economies.

The Bank of Canada’s rate cut is expected to give homebuyers more purchasing power and has already led to drops in variable mortgage rates at commercial banks. Poloz, though, said the central bank expects the so-called B-20 mortgage guideline, which includes a stress test for loans that are not insured against borrowers defaulting, “will continue to improve the quality of the stock of mortgage debt.”

Even so, changes planned by the federal government and a federal regulator to the insured and uninsured mortgage stress tests could stoke further housing activity. Those tweaks are expected to lower the “floor” on the minimum rates, making it easier for borrowers to qualify.