Tag Archive for: bank of canada

Bank's overnight rate drops to generational low!

The Bank of Canada just lowered it’s key lending rate by three quarters of a percentage point or .75 basis points. Assuming the banks follow the BoC lead ( they have not always the past few months) that will make the prime lending rate now 3.25%. This latest act of desperation by the BoC is to prevent us from dropping into a deeper and more prolonged recession, because of a world wide economic crisis and a troubled U.S economy.

This is all in an attempt to increase the flow of funds and to increase consumer confidence. In layman’s terms it is supposed to give you (and businesses) incentive to go out and spend some of your hard earned cash. This will not result in an immediate reversal of fortune, that will take some time. The immediate result they are looking for is to generate some heat on the frozen credit market. In other words, they want to make it easier for businesses and consumers to access money to borrow.

What does this mean to the average Joe or Jane? Well if you have a variable rate mortgage (one that is tied to prime rate) or a line of credit, then your payments will go down. That is if your bank follows the BoC’s lead, and there is now evidence that they are not. Other than that, there is not really enough incentive to run to the mall with a wad of cash. People are still losing their jobs at a record pace, because their companies are suffering and trying to remain solvent. 

So what can you do? Try to improve your personal financial situation by eliminating your debts as quickly as possible. Call my office today for a no obligation debt analysis so you can see where you are at and to get an opportunity to get a plan to eliminate all your debts in a very short period of time.

Cheers,

Pat

 

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.
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Who is calling the shots?

Unless you were living under a rock or had your head in the sand, you probably know that most of the central banks lowered their key lending rates yesterday by 50 basis points. This was in response to the ongoing financial crisis that seems to be gripping the world.

The strange part for us Canadian’s is that usually when the Bank Of Canada lowers it’s key lending rate, the major banks usually follow with the same immediate cuts to their prime rate. However this did not happen yesterday, the Bank of Canada drops the rate by 50 basis points and the major banks only cut their prime rate by 25! Their reason for the rebellion, they say according to a Globe & Mail article is that they are already feeling too much pain because of an increase to their lending costs.

How many billions of dollars were injected into our financial system in the past few weeks? How many more do they need? Our banking system is vastly different and more stable than  our friends in the US. Where they have hundreds of banks, we have 5 large players. 

These banks can not possibly be suffering as much as the small business owners and countless home owners across the country who really need the to reduce their borrowing costs. It just looks like they are putting their profits ahead of what is good for their clients.  I am hoping that this is only temporary, if they do this again, then what would we really need a central bank for if our banks are just going to march to the beat of their own drum.

Cheers,

Pat

  

Rate cuts everywhere!

From today’s issue of the Globe & Mail.

Major central banks slash rates in extraordinary move to ease crisis

Globe and Mail Update

 

Wednesday, October 08, 2008

OTTAWA — Major central banks took the extraordinary step of deeply cutting interest rates in a coordinated move on Wednesday, a development that serves to underline the deterioration of the world’s banking system and the threatened global recession.

Central banks in Canada, the United States, Britain, the European Union, Switzerland and Norway cut their key lending rates by half a percentage point. Only Japan, among the major central banks, opted out given that its rates are already at rock bottom.

The move came after a sharp overnight drop in Asian markets and U.S. stock futures that threatened to spark another North American selloff on Wednesday. The Dow Jones Industrial Average lost 508 points Tuesday, bringing down markets globally. Britain also was rattled by a deepening banking crisis yesterday, forcing the government to announce a $80-billion bailout package.

The move gave some comfort to worried economists, but they warned the extraordinary action is not enough to end the deepening financial crisis.

“Today’s co-ordinated half-point cuts from all the major central banks … will provide at least a temporary boost to confidence, but we fear there is still a lot more work to do,” said economists at London-based Capital Economics. “For a start, the fact that the central banks have had to take such extreme measures underlines how bad market conditions have become.”

The Bank of Canada lowered its key rate to 2.5 per cent, from 3 per cent, but tried to assure the public that Canada’s banks were still solid.

“The intensification of the global financial crisis is having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly,” the Bank of Canada said in a statement it issued alongside the joint statement with other countries.

“As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions.”

The central bank warned that a U.S. recession and weakness in key trading partners is hurting Canada’s exports. Plus, the domestic side of the economy is no longer on fire as commodity prices drop and the Canadian dollar slides, the bank noted.

More to come

© The Globe and Mail

BoC remains on hold as inflation fears rise

BREAKING NEWS FROM THE GLOBE AND MAIL

KEVIN CARMICHAEL

 

Tuesday, July 15, 2008

OTTAWA — The Bank of Canada left its benchmark interest rate at 3 per cent and predicted raging oil and food prices would cause inflation to surge past 4 per cent by early next year.

Governor Mark Carney and his five deputies on the governing council also cut their estimate for economic growth for 2008 to 1 per cent, which would be the weakest in almost two decades, citing “protracted weakness” in the U.S. economy and “ongoing turbulence” in financial markets.

The central bank’s decision to leave borrowing costs unchanged suggests Mr. Carney’s biggest concern is keeping a lid on Canadians’ expectations about prices. Policy makers raise and lower interest rates to keep inflation advancing at an annual rate of 2 per cent and are uncomfortable with prices advancing any faster than 3 per cent.

“Commodity prices are continuing to outstrip earlier expectations,” the Bank of Canada said in its statement today in Ottawa. “This has led to further increases in Canada’s terms of trade and real national income, and has altered the outlook for global and domestic inflation.”

There was little immediate reaction in financial markets as most investors and economists were expecting the Bank of Canada to leave interest rates unchanged. In the flurry of research notes that followed the central bank’s decision, economists said Mr. Carney is handcuffed by weaker growth and bubbling inflation, leaving him little choice but to stand pat.

“Overall inflation is growing concern for the Bank of Canada, but the bank’s growth worries will keep a hold on rates for the time being,” said Meny Grauman, an economist a CIBC World Markets in Toronto.

Win Thin, a currency strategist at Brown Brothers Harriman & Co. in New York, said the futures market for Overnights Index Swaps, where values are based on the underlying interest rate, suggests investors expect the Bank of Canada to lift borrowing costs by no more than a quarter point over the next 12 months, compared with expectations of a three-quarter point increase as recently as mid-June.

In its statement, the central bank called the risks to its outlook “balanced.”

The Bank of Canada also left its benchmark interest rate – the target it sets for overnight loans between banks – unchanged at 3 per cent at its last policy meeting in June, a move that surprised market players.

Before that announcement five weeks ago, policy makers had slashed their key rate by 1½ points over four decisions dating back to December, a campaign aimed at offsetting slumping U.S. demand for exports and the global credit crunch.

The priority now is persuading Canadian business owners and workers that their central bank will keep inflation from burning out of control.

One of the biggest worries at the central bank is that companies will start charging higher prices to compensate for higher commodity prices and workers will demand higher wages, sparking an inflation spiral.

There is some evidence this might already be happening. The central bank’s July survey of businesses showed 36 per cent of the companies expected inflation will climb above 3 per cent, compared with 17 per cent in April.

Policy makers stressed in their statement today that total inflation’s burst to 4 per cent in the first quarter of 2009 will be temporary. They predicted energy prices will stabilize, allowing inflation to ease back to 2 per cent by the second half of next year.

Canada’s economy hasn’t grown slower than 1 per cent since it advanced 0.9 per cent in 1992, one year after a recession, according to International Monetary Fund data.

Still, the central bank said little has happened to change its longer term growth outlook. Higher prices for exports, relatively low interest rates and a “gradual recovery” in the U.S. will spark a Canadian rebound starting early next year, the Bank of Canada said.

The central bank shaved its growth estimate for 2009 to 2.3 per cent from 2.4 per cent and left its projection for 2010 unchanged at 3.3 per cent.

The Bank of Canada will expand on its current thinking on the economy when it releases an updated policy report on Thursday. The central bank next meets to consider its benchmark interest rate on Sept. 3.

Bank of Canada urged to raise interest rates

The Canadian Press

July 10, 2008 at 4:04 PM EDT

OTTAWA — The Bank of Canada should move to head off inflation in the country by raising interest rates next week for the first time in a year, says a consensus view by a deeply divided panel of nine economists associated with the C.D. Howe Institute.

A closer look suggests the economic think tank’s monetary policy council was almost evenly divided 5-4 between those favouring a rate increase and those who thought the central bank should leave the rate unchanged.

Four members were in favour of the central bank leaving its overnight interest rate unchanged at 3.0 per cent next Tuesday, four others advocated a quarter-point increase and one wanted a half-point increase.

The overnight rate is a benchmark that is used by commercial banks when they set various other lending rates, including for shorter-term mortgages.

“Notwithstanding the division in opinion regarding the Bank of Canada’s July 15 decision, the main theme of the group’s discussion was concern about rising inflation and rising inflation expectations,” the institute said in a release.

“Several members argued that the Bank of Canada should act aggressively to prevent expectations of higher inflation becoming more pronounced and affecting price and wage setting.”

The economists cited high oil prices, the increased likelihood inflation will move above the upper end of the bank’s target range of one to three per cent, rising wages and a recent Bank of Canada business survey that found 42 per cent of firms planned to increase prices for their products.

The private-sector think thank said economists who favoured no action said they were concerned about the slumping economy, but even in this group, most saw the rate going to at least 3.25 per cent in the next six to 12 months.

The Bank of Canada uses monetary policy to keep inflation in check. Raising rates increases borrowing costs, thereby slowing down economic activity and growth.

The central bank began trimming the overnight rate from the then 4.5 per cent level in December as the economy began showing signs of slowing and perhaps contracting.

But after slicing 150 basis point from the overnight rate, following the lead of the United States, the Bank of Canada halted its easing policy last month, saying that inflation was beginning to re-emerge in Canada.

The bank last raised the overnight rate in July 2007.