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Wednesday, January 13, 2010 - Bank of Canada calls talks of housing bubble premature

A Bank of Canada official called talks of a Canadian housing bubble
premature in a speech in Edmonton Monday, adding higher interest rates
are not the solution to cooling the current surge in housing demand and
prices.

"If the bank were to raise interest rates to cool the housing market now
- when inflation is expected to remain below target for the next year
and a half - we would, in essence, be dousing the entire Canadian
economy with cold water, just as it emerges from recession," said David
Wolf, an advisor to Bank of Canada governor Mark Carney. "As a result,
it would take longer for economic growth to return to potential and for
inflation to get back to target."

The central bank's comments came on the heels of the CMHC's latest
report
<http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2010/2010-01-11-0815..cfm>
on housing starts, which showed a 6.6 per cent jump in urban starts
across Canada compared to November. They also follow federal finance
minister Jim Flaherty's recent comments about introducing new rules to
cool the housing market.

In his speech, Wolf said housing bubbles are usually caused by credit
expansion as opposed to temporary factors like low interest rates and
pent-up demand, and these factors cannot continue to sustain the high
numbers of sales and prices seen in Canada over the past few months.
Wolf also said the central bank is monitoring the housing market
closely, adding it required "vigilance, not alarm."
posted in News at Wed, 13 Jan 2010 12:35:18 -0800

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