IMF Warns Canada on Possibility of Sharp Decline in Housing Market

The International Monetary Fund said on Thursday that while Canada’s economy has regained momentum, housing imbalances have increased and uncertainty surrounding trade negotiations with the United States could hurt the recovery.

The report, written before the central bank raised interest rates by a quarter of a percentage point on Wednesday to 0.75 percent, also said the Bank of Canada’s current monetary policy stance is appropriate, and it cautioned against tightening.

“While the output gap has started to close, monetary policy should stay accommodative until signs of durable growth and higher inflation emerge,” it said, adding that rate hikes should be “approached cautiously.”

Cheng Hoon Lim, IMF mission chief for Canada, later clarified that even with Wednesday’s rate hike, monetary policy remains “appropriately accommodative.”

“The Bank of Canada’s increase of the policy rate reflects encouraging economic data over the past few months. We welcome the good news on the economy,” Lim

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