Rate increase won't hurt the Canadian economy, however.
OTTAWA – Bank of Canada governor Stephen Poloz says he expects long-term interest rates to rise this summer but doubts it will hurt the Canadian economy.
Speaking in an interview on CBC’s The Lang and O’Leary Exchange, Poloz said he believes the US Federal Reserve will continue tapering and that will add to pressure on bond yields.
The US central bank has already decided to reduce its $85 billion a month of bond purchases by $10 billion and says it will monitor economic conditions, particularly US employment, in making further decisions.
Poloz says Fed tapering will inevitably put pressure on Canadian bond yields, likely leading to an increase in long-term fixed mortgage rates even if the Bank of Canada does not increase its benchmark rate.
However, Poloz said that should not greatly hurt the Canadian economy since the housing market already appears to be heading for a soft landing.
Meanwhile, consumer spending, which has kept the economy strong these last few years, must come down to bring down household debt levels and be replaced as a driver of the economy by exports.
©The Canadian Press