Winnipeg Free Press - PRINT EDITION

Bank of Montreal forecasts low interest rates to July 2013

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TORONTO -- The Bank of Montreal predicted Tuesday that the Bank of Canada will keep interests rates lower for longer than it expected.

Economists at the bank now believe the central bank will not raise its key rate until July 2013, six months later than their earlier prediction of January 2013.

Senior economist Michael Gregory said the change stems from the easing policy of the U.S. Federal Reserve, a downgraded Canadian economic outlook and tightened mortgage rules.

The changes, which include a cut to the maximum amortization period for government-insured mortgages to 25 years from 30, should stem some fears around growing household debt that would otherwise push the Bank of Canada to increase rates sooner.

"The tightening of the government's mortgage-insurance rules does serve to act like higher interest rates specifically for that sector," Gregory said.

The Bank of Canada has kept its key interest rate at one per cent since September 2010. The rate affects the prime lending rates at Canada's major banks, which in turn influence other interest rates, including variable-rate mortgages and lines of credit.

Gregory said he expects Bank of Canada's projections for economic growth in its July 18 monetary policy report will show softer growth in Canada.

 

-- The Canadian Press

Republished from the Winnipeg Free Press print edition July 4, 2012 B5

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