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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

 

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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