The central bank seems pretty aggresive in the following statement…lets see how far they will stretch the interest rates to? Will the real estate boom crash in GTA area far worst then other provinces? Feel sorry for the people who bought a 3200 sq ft newly constructed house for over $420,000 
Central bank says rates to rise soon
Blunt warning lifts dollar 0.95¢ but sinks bond prices
STEVEN THEOBALD
BUSINESS REPORTER
The days of ultra-low borrowing costs appear to be coming to an end.
Canada’s central bank issued an uncharacteristically blunt warning yesterday that it must start hiking its trend-setting overnight rate “in the near term” to keep inflation under control and the economy in balance.
Financial markets responded immediately to the 9 a.m. news release. The Canadian dollar shot up while short-term bond prices fell and yields rose several basis points, reflecting expectations the Bank of Canada will raise interest rates sooner and perhaps more aggressively than previously thought.
“I cannot recall any time over the past 10 years when the Bank of Canada has made a statement that transparent and forceful,” said Marc Lévesque, chief strategist at TD Securities.
“This is openly saying we are raising rates on Sept. 7.”
The central bank kept the overnight lending rate unchanged yesterday at 2.5 per cent as widely expected. The surprise was the disclosure it no longer feels it has the luxury of raising the overnight rate “over time.”
A long string of recent data showed the Canadian economy is in good health and operating close to capacity.
Last Friday’s release of the strong June employment report showed the jobless rate returning to a 30-year low of 6.7 per cent, last hit during the height of the 2000 boom.
Financial markets are now starting to price in the possibility the Bank of Canada may hike rates by three-quarters of a percentage point by year’s end, a quarter point more than expected on Monday, said Lévesque.
“That is what’s driving the market. I think that is entirely reasonable.”
The overnight rate, which directly influences prime lending rates and variable-rate mortgages, could go up by 1.5 percentage points by the end of 2006, said Sal Guatieri, senior economist at the Bank of Montreal. A rising overnight rate ought to put upward pressure on bond yields, which largely determine longer-term loan rates, he added. “Essentially, the central bank is returning interest rates to more normal, or neutral, levels.”
The Canadian dollar, which also got a boost yesterday from rebounding crude oil prices and a falling U.S. greenback, posted its fifth straight gain. It ended the day at 83.15 cents (U.S.), up 0.95 of a cent, breaking the 83 cent mark for the first time since mid-March.
Renewed strength in the loonie will put pressure on exporters, slowing the economy. The double-whammy of rising interest and exchange rates may force the central bank to hike the overnight rate more slowly than people expect, said Steve Butler, senior currency trader at Scotia Capital.
Another risk is that the U.S. economy, which has endured nine consecutive interest rate hikes by the Federal Reserve Board, may slow noticeably by the middle of next year.
“With oil prices near record highs and the Fed still raising its key Fed funds rate, there are still downside risks on the economic front,” John Johnston, chief strategist at the Harbour Group, part of RBC Dominion Securities, said in an email to clients.
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