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Business Briefing Mr. Poloz, Toronto’s housing bubble ‘is not your problem’

Briefing highlights

  • What to expect from Poloz this morning
  • BMO raises dividend as profit jumps
  • Markets at a glance
  • Quebec building sector hit by walkout

‘Not your problem’

Some observers have suggested Bank of Canada Governor Stephen Poloz raise interest rates to deflate Toronto’s housing bubble.

But, Mr. Poloz, Deutsche Bank says “Toronto is not your problem.”

As The Globe and Mail’s Barrie McKenna reports, Mr. Poloz and his central bank colleagues held their benchmark overnight rate steady at 0.5 per cent, saying recent indicators have been “encouraging.”

For his part, Mr. Poloz has left the inflated Vancouver and Toronto housing markets to government policy measures, both at the provincial and federal levels.

And at any rate, it’s a local, rather than national, problem, though one with Canada-wide implications.

British Columbia’s move to tax foreign buyers in the Vancouver area has sparked a sales slump, while a similar move by Ontario to cool down the markets in and around Toronto is too recent to gauge.

Regardless, say Deutsche Bank macro strategist Sebastien Galy and senior economist Brett Ryan, there’s nothing in the Toronto and Vancouver that should knock the central bank off its course.

“A detailed look at the Greater Toronto Area housing market price dynamics does not suggest the Bank of Canada would revise substantially lower its growth and [inflation] forecasts,” Mr. Galy and Mr. Ryan said before the rate decision in a report titled “Toronto is not your problem.”

Indeed, the central bank said little today other than that things are looking up, though housing markets are still a big question mark.

“The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment,” the Bank of Canada said.

“Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions,” it added.

“Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial effect on housing markets.”

Deutsche Bank’s Mr. Ryan said there was nothing in today’s statement to change his view, given it was in line with what he expected.

“In fact, if anything it strengthens our view because they’re starting to acknowledge the improvement in the economy and better U.S. data,” he said.

National Bank senior economist Krishen Rangasamy, for one, isn’t so sure that the central bank wouldn’t eventually act to cool down housing.

“The reference to the lack of success (so far) of macroprudential measures in cooling the housing market is very interesting,” Mr. Rangasamy said.

“It suggests that, if the resale market does not soften, the central bank may decide to complement macroprudential measures with rate hikes in an attempt at restraining the rampant housing market.”

Observers generally believe Mr. Poloz won’t move on rates until next year, and possibly well into the year.

On other fronts, the central bank noted that growth in exports “remains subdued” given competitive challenges.

“The bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter,” it added.

The Deutsche Bank observers said, by the way, that they expect the Toronto impact to be “roughly double” that of Vancouver.

BMO boosts dividend

Bank of Montreal kicked off earnings among Canada’s big banks with a jump in profit and a higher quarterly dividend.

The bank boosted its payout by 2 cents to 90 cents as second-quarter profit rose to $1.25-billion, or $1.84 a share, from $973-million or $1.45 a year earlier.

Adjusted earnings per share rose to $1.92.

“We remain confident in our ability to grow and create value in an evolving environment,” chief executive officer Bill Downe said in unveiling the numbers.

Markets at a glance

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