By Andrea Hopkins
WASHINGTON (Reuters) - Bank of Canada Governor Stephen Poloz said on Saturday he was happy that Ontario has brought in new measures to tackle the Toronto housing market, saying a foreign buyers tax should help dampen demand and impact the psychology of speculators.
"I'm happy that there are measures, it's a risk we've been highlighting," Poloz told reporters on the sidelines of the spring meeting of the International Monetary Fund.
"How will they work? Well, some of them are similar to what happened in Vancouver, (that) seems to have had some effect on the Vancouver market, we are still monitoring that, so I have every reason to believe they will make a contribution," he said.
Ontario's provincial government last week introduced a 15 percent tax on property purchases by foreign buyers as part of 16 measures designed to cool the red-hot housing market in Toronto, the nation's largest city.
A 33 percent increase in prices in Toronto in the year to March, on top of a doubling in prices since 2009, had prompted an outcry of concern about a possible bubble despite multiple moves by the federal government to tighten mortgage rules.
Poloz said prices in Toronto had become divorced from fundamentals, and there were signs that some form of speculative demand had taken over based on an extrapolated expectation of continued price gains.
"I think you are actually playing with, or trying to influence, psychology more than fundamentals. Some of those things (Ontario measures) were about fundamentals, so there are many things going on," Poloz said.
"So it's kind of hard to predict how those measures will affect how people think about those expectations."
Still, he reiterated that the quality of mortgage debt has been improving as the government tightened mortgage lending rules in recent years, building a cushion or resiliency into financial positions.
With trade and protectionism at the top of the agenda at the IMF and Group of 20 meetings in Washington, Poloz said uncertainty remains high and policymakers need to be mindful of an extra layer of geopolitical risk that has been more prominent in the last year or two.
Asked about a recent move to bump up the bank's forecasts for Canadian economic growth, Poloz said experiencing serial disappointments "teaches you to be cautious," but a positive surprise is at some point inevitable.
He also said that while there has definitely been an improvement in investment sentiment, the level of planned investment has not gone up.
(Reporting by Andrea Hopkins; Editing by Andrea Ricci)