The International Monetary Fund says Canada should ignore calls to relax stricter mortgage rules, or introduce new measures to reignite the housing market.
“The government is under pressure to ease macroprudential policy or introduce new initiatives that buttress housing activity,” said the IMF in a statement.
“This would be ill-advised, as household debt remains high and a gradual slowdown in the housing market is desirable to reduce vulnerabilities.”
Policy alone, won’t be enough to create a truly healthy market. The IMF wants governments on all levels to find ways to increase supply as well.
The IMF says a string of interest rate hikes by the Bank of Canada should help keep household debt in check while reducing financial stability risks.
For the now, the IMF says rates should stay on hold. When tightening is warranted, it should be gradual. But a cut isn’t out of the question either.
“If downside risks materialize and the outlook deteriorates, the Bank of Canada should be prepared to cut the policy rate.”
A sharp correction in the housing market is one of those risks.
“If a house price correction is accompanied by a rise in unemployment and a collapse in private consumption, additional risks to financial stability and growth could emerge,” said the IMF.
“External risks include a larger-than-expected global growth slowdown, a sharp tightening of global financial conditions, or an escalation of trade tensions between the U.S. and its major trading partners, which could include the failure to ratify USMCA and the break-up of NAFTA.”
The IMF says trade tensions with the U.S. and its biggest trading partners “casts a shadow over the economic outlook.”
GDP is projected to slow to 1.5 per cent in the 2019, according to the IMF's forecast.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains