Bank of Canada holding rates??

The Bank of Canada is almost certain to wait until the latter half of this year to raise interest rates, now that an election is in the offing.

Many economists were already predicting that rate hikes would be on hold until the summer and the spectre of a federal campaign is now cementing that view. History shows that the central bank is usually reluctant to increase rates during an election, due to uncertainty about the direction of the government’s economic policies and the possibility that the move could be seen as partisan.

 Bank of Canada did raise rates in December, 2005, and it lowered them in October, 2008, each time during an election campaign. But in the first instance, it was one more move in a tightening push that began in 2004; in the second, in was during the midst of a global financial meltdown.

While the central bank’s board is appointed by the minister of finance, and ultimately responsible to Ottawa, the bank maintains its independence. Nevertheless, Canadian central bankers generally shy away from media interviews and press conferences during elections and stick to prewritten speeches so as not to inadvertently wade into a political campaign.

The Bank of Canada tends to signal its moves ahead of time – so economists expect that consumers and corporate borrowers have at least a few months to prepare for the next rate hike.

Canadian Imperial Bank of Commerce chief economist Avery Shenfeld had previously thought that the next hike would take place in May, but he now believes it will happen in July. Much of his rationale is based on the notion that the central bank “may be reluctant to use the April meeting to signal a May hike, given that April will come in the middle of an election.”

Economists at Scotia Capital said that the looming election has created new uncertainty about the fiscal policy environment in the near term, and reinforced their view that rate increases won’t occur before October.

“It is less clear whether fiscal policy will act as a drag on growth if election goodies are dangled about,” they said in an e-mail to clients Wednesday morning. “Second, over roughly the past 20 years, the Bank of Canada has generally avoided starting a tightening campaign in an election.”

A number of experts caution that the central bank would certainly take action, election or no election, if it felt it was necessary to do so.

“They are fully flexible and independent of what’s going on in the government,” said Charles St-Arnaud, a foreign exchange research analyst at Nomura Securities in New York.

Although it’s highly unlikely, “if they feel there’s a really big need to increase, they will still go,” he said. A rare example might be a geopolitical risk that shocks the Canadian dollar and prompts the Bank of Canada to raise rates to restore value.

While the central bank prefers not to take action during an election, it would certainly do so if it felt that it was necessary, said Toronto-Dominion Bank chief economist Craig Alexander, who is sticking to his prediction that the Bank won’t move before July. “The economic numbers we are getting are solid, but aren’t sending a signal that inflation is going to be a problem,” he said.

Indeed, Scotia Capital economist Derek Holt said the retail sales figures that came out this week illustrate that “the Canadian consumer is tapped-out.”

Come see me at White house Mortgages if you have anymore questions.  Call me @ 250.826.5679 of check my site www.bradadams.ca

New Mortgage Rules Take Effect Today

New CMHC Rules In Effect On March 18, 2011

New CMHC Rules Come Into Effect on March 18, 2011 …

Just a reminder that the changes that Jim Flaherty, our federal Minister of Finance, announced to the Canadian Mortgage and Housing Corporation (CMHC) back on January 17^th are coming into affect on March 18th. These changes have been designed to slow the rate at which Canadians are borrowing and to further stabilize the Canadian housing market. As long as your mortgage application has been submitted by the 18^th you will still qualify under the old rules. Today is the last day for 35 years!!!

How Might These Changes Affect You?

If you are a homeowner who might be contemplating refinancing for major renovations and your home has a high-ratio mortgage, the rules have changed in regards to what percentage of your home’s value may be used for refinancing purposes. The refinance loan-to-value percentage used to be 90% and on March 18^th it goes down to 85%.　

The maximum allowable amortization rate for high-ratio mortgages is about to decrease from 35 years to 30 years on March 18^th too.　

Questions? Concerns? Will this affect you?  Feel free to call or email me anytime! I welcome your inquiries.

250.826.5679

Variable Rates Hold Steady

BoC Takes Another Pass on Rate Hike

Despite a surge in 4^th quarter economic activity, the Bank of Canada has held its key lending rate at 1.00% for the fourth consecutive meeting.

In turn, prime rate will remain at 3.00%, which is welcome news for variable-rate mortgage-holders.

Although economists expected no rate change today, TD Economics said last week that the Canadian economic outlook is “looking a little stronger than before.” As a result, “the (Bank of Canada’s) decision is becoming more finely balanced.”

The BoC had this to say in its statement today:

• The global economic recovery is proceeding “broadly in line with the Bank’s projection in its January Monetary Policy Report (MPR), although risks remain elevated.”
• The Bank said Canada’s recovery is proceeding “slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand.”
• “While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank's expectations.”
• The Bank also noted that today’s decision leaves “considerable monetary stimulus in place”, but that “any further reduction in monetary policy stimulus would need to be carefully considered.

The next Bank of Canada rate meeting is April 12. However, the next rate hike isn’t expected until May 31 or July 19. That forecast is based on the median economist prediction and the prices of overnight index swaps (which traders use to gauge the market’s rate expectations.) As always, things could change as economic events unfold.

PUBLICATIONS AND RESEARCH

Press Releases

   

2011

FOR IMMEDIATE RELEASE 1 March 2011

CONTACT: Jeremy Harrison 613 782-8782

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Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding broadly in line with the Bank’s projection in its JanuaryMonetary Policy Report (MPR), although risks remain elevated.  U.S. activity is solidifying and remains supported by stimulative fiscal and monetary policies.  Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.

The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand.  While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes. Business investment continues to expand rapidly as companies take advantage of stimulative financial conditions and respond to competitive imperatives.  There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities. However, the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.

While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank's expectations. Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. 

Information note:

The next scheduled date for announcing the overnight rate target is 12 April 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 13 April 2011.