Rate Cuts On the Horizon

The Bank of Canada is expected to lower the target overnight bank rate next week in response to the economic slowdown and today's residential and industrial construction data should provide further evidence of moderating growth.

Building permits data are forecast to have increased by a modest 0.5% during April, compared with a 4.5% drop in March.

There is a discernible downward trend on the value of building permits being taken out by the building community. The real estate market is seeing a pickup in the demand for multiunit dwellings as the population ages and as the cost of single-family homes rises. The dollar value of residential permits has fallen to $3.6-billion, down from $4-billion in the fall of 2007.
Non-residential permits are forecast up slightly at $2-billion in April, but that follows a 22% decline in March.

Building permits likely continued to decline in April as housing starts fell 12% on a month-over-month basis, implying weaker residential permits and a likely continuing trend toward weaker nonresidential permits.

As a result, investors expect the Bank of Canada will lower its target overnight bank rate next Tuesday by one-quarter of a percentage point to 2.75% and that could help the Canadian banks.