Bank of Canada cuts target rate by 25 bps to 0.25%; provides "conditional
commitment" to hold policy rate at 0.25% until end of 2010
The Bank of Canada cut the target for the overnight rate by 25 basis points to 0.25% citing a deeper-than-expected recession in Canada and the fact that "measures to stabilize the global financial system have taken longer than expected to enact". Markets were evenly split on whether the Bank would cut by 25bps or leave the target for the overnight rate at 50bps. In a twist to its usual policy, the Bank indicated that it did not lower the deposit rate paid on deposits by financial institutions at the BOC. Under normal circumstances, the deposit rate would also be cut by 25 basis points however to avoid distortions in short-term money markets, the Bank left the deposit rate unchanged. The Bank rate was cut to 0.50%.
The Bank also committed to keeping this rate structure until the end of the second quarter of 2010 in an effort to ensure that the inflation rate gravitates back to the 2% target over the medium term. While no mention of quantitative or credit easing was made in today's statement, the Bank stated that it "retains considerable flexibility in the conduct of monetary policy at low interest rates" and a framework will be outlined in Thursday's Monetary Policy Report.
The statement provided the broad strokes of the Bank's economic forecast update with details to follow in Thursday's Monetary Policy Report. On the back of recent reports, the Bank downgraded its forecast and now looks for the economy to continue to contract in the third quarter of the year. The 2009 forecast for real GDP growth was revised down to show a 3.0% decline compared to January's forecast of a 1.2% slip. The longer and deeper recession in 2009 will also put strains on the economy in 2010 and the Bank lowered its growth forecast to 2.5% from 3.8%. The Bank provided a forecast for 2011 real GDP of 4.7%. Against the weaker growth backdrop, the Bank now looks for the inflation rate to return to its target in the third quarter of 2011 rather than the second quarter and said that risks to the
projection are "tilted slightly to the downside."
Today's announcement was different in many ways relative to past statements and importantly provided a "conditional commitment" to holding both the target and deposit rate at one-quarter of a percent for a specific time frame (until the end of the second quarter of 2010). While the Bank did not produce or commit to using any other tools to implement additional easing in monetary policy, the details of their program on be released on Thursday will provide the means by which next steps can be taken if the economy disappoints the Bank's already-weak economic assumptions. The Bank also provided the detailed framework which it will use to conduct policy during this new regime. By providing removing some of the uncertainty about the direction of interest rates over the next year, the Bank is working hard to boost the confidence of Canadian households and businesses with the goal of putting the economy on a firmer growth path.
Showing posts with label Bank of Canada. Show all posts
Showing posts with label Bank of Canada. Show all posts
Tuesday, April 21, 2009
Tuesday, March 3, 2009
Bank of Canada Rate Drops by half a percent
Take this opportunity to contact your licensed mortgage professional and compare your existing mortgage with what is available today. You may be surprised at how much you can save. Check back with us soon to see how today's announcement affects the fixed rate mortgages.
OTTAWA - The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1/2 per cent.
The outlook for the global economy has continued to deteriorate since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in major economies. The nature of the U.S. recession, with very weak auto and housing sectors, is particularly challenging for Canada.
Stabilization of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard.
National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January. Potential delays in stabilizing the global financial system, along with larger-than-anticipated confidence and wealth effects on domestic demand, could mean that the output gap will not begin to close until early 2010. These factors imply a slightly lower profile for core inflation than was projected in the January MPRU.
The effects of the recent aggressive monetary and fiscal policy actions in Canada and other major economies will begin to be felt in the second half of this year and will build through 2010. Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.
The Bank's decision to lower its policy rate by 50 basis points today brings the cumulative monetary policy easing to 400 basis points since December 2007. Consistent with returning total CPI inflation to 2 per cent, the target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.
Given the low level of the target for the overnight rate, the Bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing. In its April Monetary Policy Report, the Bank will outline a framework for the possible use of such measures.
The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term.
OTTAWA - The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1/2 per cent.
The outlook for the global economy has continued to deteriorate since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in major economies. The nature of the U.S. recession, with very weak auto and housing sectors, is particularly challenging for Canada.
Stabilization of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard.
National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January. Potential delays in stabilizing the global financial system, along with larger-than-anticipated confidence and wealth effects on domestic demand, could mean that the output gap will not begin to close until early 2010. These factors imply a slightly lower profile for core inflation than was projected in the January MPRU.
The effects of the recent aggressive monetary and fiscal policy actions in Canada and other major economies will begin to be felt in the second half of this year and will build through 2010. Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.
The Bank's decision to lower its policy rate by 50 basis points today brings the cumulative monetary policy easing to 400 basis points since December 2007. Consistent with returning total CPI inflation to 2 per cent, the target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.
Given the low level of the target for the overnight rate, the Bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing. In its April Monetary Policy Report, the Bank will outline a framework for the possible use of such measures.
The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term.
Monday, March 2, 2009
Is the Bank of Canada running out of bullets ?
People are noticing that interest rates are at 65 year lows ... contact a mortgage professional to compare your existing mortgage with a new deal at today's fantastic rates. It costs nothing for the call and you may find out you'll save in the long run and lock in today's rates for another few years to come. Here's an article which should provide more good news for those in variable rate mortgages.
JULIAN BELTRAME Globe and Mail Report on Business The Canadian Press
OTTAWA - Just about now, Bank of Canada governor Mark Carney should be experiencing that sinking, helpless feeling about the economy.
It's not for want of trying to shock the economy back to life.
On Tuesday, the telegenic former Goldman Sachs executive is widely expected to cut short-term interest rates another half-point to bring the central bank's overnight rate to a barely-noticeable 0.5 per cent. For all practical purposes, zero.
That would make it the seventh time Mr. Carney has eased a notch, sometimes several notches, on interest rates since taking charge of the central bank last February. In that time he has also injected $40-billion in cash into the economy through asset swaps with banks, and last week took the unusual step of agreeing to accept corporate bonds as collateral to try and free up credit.
None of it has worked and the economy continues to decline.
One problem Mr. Carney faces is that in the current global credit crunch, financial market interest rates are volatile so there's no assurance Canadian banks will pass along the full Bank of Canada rate cuts by reducing their prime lending rate by the same amount.
The prime is the base used by banks to set rates on consumer and corporate loans, lines of credit and some mortgages. While the prime has dropped in most cases by the same amount as the Bank of Canada rate in the last year or so, other interest rates in the market have been rising and loans have been harder to get as the banks avoid riskier lending during a recession.
A recent survey shows a majority of manufacturers say access to credit is still the major obstacle they face.
"There is clear evidence that very low interest rates are not working to expand economic activity," former Conservative cabinet minister Doug Peters, once also a TD Bank chief economist, wrote in a paper for the Canadian Centre for Policy Alternatives.
"In the current recessionary environment, banks are obviously worried about lending to each other, and of course, are worried about lending to consumers and firms. Interest rates that count, such as inter-bank lending rates, mortgage lending rates, bank commercial lending rates, are all unusually high, especially considering that inflation is also very close to zero."
Even before Mr. Carney's Tuesday move, a new report Monday from Statistics Canada is expected to reveal that the Canadian economy, in Finance Minister Jim Flaherty's blunt words, "fell off the table" in the fourth quarter of 2008.
Private sector economists are predicting a sharp three-to-four per cent contraction in economic activity - severe recessionary territory - but remarkably it could be worse. In fact, Mr. Carney is predicting worse for the first three months of this year with a 4.8-per-cent economic contraction.
In his last public speech in January, Mr. Carney insisted that monetary action taken so far "will work," noting the lengthy lag time between action and impact, often cited as 12 to 18 months.
Since the bank started cutting 15 months ago, Canada should be just beginning to feel the effects.
Of course, Mr. Carney has invested a lot of credibility in the assertion it will work. He has stuck out his neck by predicting the economy will bounce back like an Indian rubber ball to 3.8 per cent growth next year, a forecast that has a few supporters and many detractors.
Although he doesn't believe the rebound will be as dramatic, Bank of Montreal economist Douglas Porter says there are good reasons to buy into Mr. Carney's rosy assessment, which would make the current slump milder than the recessions of the early 1980s and 1990s.
First, interest rates are much lower now than during the previous downturns. Second, aggressive stimulus policy is kicking in. And lastly, corporate balance sheets were in better shape heading into the current recession as compared to the previous two.
These act as shock absorbers for the economy's hard landing. However, they will be of little use if the world financial system is not fixed.
That's because until global banks have the confidence and wherewithal to start lending again, the U.S. and global economies will continue to struggle. And that will keep prices for commodities that Canada exports low, sap demand for Canadian manufactured goods, and in turn stifle Canadian job creation and incomes.
And that's where Mr. Carney's frustration comes in. He is largely a spectator in a game played outside his borders, able to influence the outcome only at the margins.
Mr. Carney has received some heat for some of his decisions, most notably keeping interest rates unchanged for a full five months from May to October last year in the mistaken belief that financial markets were stabilizing. But given that he's made up for lost time since then, most economists conceded the period of inaction wasn't critical.
"There are some quibbles I might have over what the Bank of Canada or Ottawa have done, but those are just specks of sand on the beach compared to what's hit us from outside this country," says Mr. Porter.
"There are things policy makers here can do to cushion the blow, but the tools at their disposal are only so big and they can only do so much to offset this deep global downturn."
In his January speech, Mr. Carney talked about other measures at his disposal besides rate cuts, no doubt foreshadowing last week's action on corporate bonds. The bank could also follow the Fed example by implementing so-called "quantitative easing" facilities to pump funds into the private sector, or follow Japan's lead by directly buying corporate bonds, or still more exotic intrusions in the money markets.
But Mr. Holt cautions non-traditional initiatives, even if Mr. Carney judged taking on the added risk necessary, would likely not be game-changing in isolation.
The next big round of central bank action should be left to the Fed and perhaps the Bank of England, he said. This could involve printing mounds of money to buy up government treasury bills in order to free up more cash for the private sector economy.
"You can cut rates to near zero, you can stimulate the domestic economy through fiscal policy, but you still need a rebound in the U.S. and European economies," he explains.
"The smart position (for Carney) is to cut rates Tuesday and wait and see what global central banks do elsewhere."
JULIAN BELTRAME Globe and Mail Report on Business The Canadian Press
OTTAWA - Just about now, Bank of Canada governor Mark Carney should be experiencing that sinking, helpless feeling about the economy.
It's not for want of trying to shock the economy back to life.
On Tuesday, the telegenic former Goldman Sachs executive is widely expected to cut short-term interest rates another half-point to bring the central bank's overnight rate to a barely-noticeable 0.5 per cent. For all practical purposes, zero.
That would make it the seventh time Mr. Carney has eased a notch, sometimes several notches, on interest rates since taking charge of the central bank last February. In that time he has also injected $40-billion in cash into the economy through asset swaps with banks, and last week took the unusual step of agreeing to accept corporate bonds as collateral to try and free up credit.
None of it has worked and the economy continues to decline.
One problem Mr. Carney faces is that in the current global credit crunch, financial market interest rates are volatile so there's no assurance Canadian banks will pass along the full Bank of Canada rate cuts by reducing their prime lending rate by the same amount.
The prime is the base used by banks to set rates on consumer and corporate loans, lines of credit and some mortgages. While the prime has dropped in most cases by the same amount as the Bank of Canada rate in the last year or so, other interest rates in the market have been rising and loans have been harder to get as the banks avoid riskier lending during a recession.
A recent survey shows a majority of manufacturers say access to credit is still the major obstacle they face.
"There is clear evidence that very low interest rates are not working to expand economic activity," former Conservative cabinet minister Doug Peters, once also a TD Bank chief economist, wrote in a paper for the Canadian Centre for Policy Alternatives.
"In the current recessionary environment, banks are obviously worried about lending to each other, and of course, are worried about lending to consumers and firms. Interest rates that count, such as inter-bank lending rates, mortgage lending rates, bank commercial lending rates, are all unusually high, especially considering that inflation is also very close to zero."
Even before Mr. Carney's Tuesday move, a new report Monday from Statistics Canada is expected to reveal that the Canadian economy, in Finance Minister Jim Flaherty's blunt words, "fell off the table" in the fourth quarter of 2008.
Private sector economists are predicting a sharp three-to-four per cent contraction in economic activity - severe recessionary territory - but remarkably it could be worse. In fact, Mr. Carney is predicting worse for the first three months of this year with a 4.8-per-cent economic contraction.
In his last public speech in January, Mr. Carney insisted that monetary action taken so far "will work," noting the lengthy lag time between action and impact, often cited as 12 to 18 months.
Since the bank started cutting 15 months ago, Canada should be just beginning to feel the effects.
Of course, Mr. Carney has invested a lot of credibility in the assertion it will work. He has stuck out his neck by predicting the economy will bounce back like an Indian rubber ball to 3.8 per cent growth next year, a forecast that has a few supporters and many detractors.
Although he doesn't believe the rebound will be as dramatic, Bank of Montreal economist Douglas Porter says there are good reasons to buy into Mr. Carney's rosy assessment, which would make the current slump milder than the recessions of the early 1980s and 1990s.
First, interest rates are much lower now than during the previous downturns. Second, aggressive stimulus policy is kicking in. And lastly, corporate balance sheets were in better shape heading into the current recession as compared to the previous two.
These act as shock absorbers for the economy's hard landing. However, they will be of little use if the world financial system is not fixed.
That's because until global banks have the confidence and wherewithal to start lending again, the U.S. and global economies will continue to struggle. And that will keep prices for commodities that Canada exports low, sap demand for Canadian manufactured goods, and in turn stifle Canadian job creation and incomes.
And that's where Mr. Carney's frustration comes in. He is largely a spectator in a game played outside his borders, able to influence the outcome only at the margins.
Mr. Carney has received some heat for some of his decisions, most notably keeping interest rates unchanged for a full five months from May to October last year in the mistaken belief that financial markets were stabilizing. But given that he's made up for lost time since then, most economists conceded the period of inaction wasn't critical.
"There are some quibbles I might have over what the Bank of Canada or Ottawa have done, but those are just specks of sand on the beach compared to what's hit us from outside this country," says Mr. Porter.
"There are things policy makers here can do to cushion the blow, but the tools at their disposal are only so big and they can only do so much to offset this deep global downturn."
In his January speech, Mr. Carney talked about other measures at his disposal besides rate cuts, no doubt foreshadowing last week's action on corporate bonds. The bank could also follow the Fed example by implementing so-called "quantitative easing" facilities to pump funds into the private sector, or follow Japan's lead by directly buying corporate bonds, or still more exotic intrusions in the money markets.
But Mr. Holt cautions non-traditional initiatives, even if Mr. Carney judged taking on the added risk necessary, would likely not be game-changing in isolation.
The next big round of central bank action should be left to the Fed and perhaps the Bank of England, he said. This could involve printing mounds of money to buy up government treasury bills in order to free up more cash for the private sector economy.
"You can cut rates to near zero, you can stimulate the domestic economy through fiscal policy, but you still need a rebound in the U.S. and European economies," he explains.
"The smart position (for Carney) is to cut rates Tuesday and wait and see what global central banks do elsewhere."
Monday, January 26, 2009
Inflation hits 2 year low
Your Mortgage Matters wants to start your week off with some good news ! Check with your mortgage professional for some great news today on low interest rates.
Just when you need to hear it most - in the middle of a cold snap with economic woes and uncertainty ... you heard it right: Inflation hits a 2 year low.
In fact if not for a spike in the price of some food items the rate would actually be zero! Falling gas and energy prices were countered by rising foodstuffs (fresh vegetables, bakery and cereals all up substanitally) in the December 2008 stats.
Our island neighbours in P.E.I. actually rang up a zero with New Brunswick and Nova Scotia recording decreases of 0.6 and 0.2 per cent respectively. Statistics Canada confirms that the annual rate decreased to 1.2% for the end of 2008 which is a low not experienced since the beginning of 2007.
Month over month November '08 to December '08 prices were 0.7 per cent lower.
Even with these amazing figures, Canada's inflation rate comes in at about 1% above that of the U.S.A. but our weaker dollar and good wage gains by those keeping their jobs makes deflation less of a risk.
The Bank of Canada recently forecast inflation will likely drop below zero in the 2nd quarter once food prices react to the drops in energy and commodity prices. The Bank's "core inflation rate" which excludes energy and many food products due to their volatility remained at 2.4% last month.
Just when you need to hear it most - in the middle of a cold snap with economic woes and uncertainty ... you heard it right: Inflation hits a 2 year low.
In fact if not for a spike in the price of some food items the rate would actually be zero! Falling gas and energy prices were countered by rising foodstuffs (fresh vegetables, bakery and cereals all up substanitally) in the December 2008 stats.
Our island neighbours in P.E.I. actually rang up a zero with New Brunswick and Nova Scotia recording decreases of 0.6 and 0.2 per cent respectively. Statistics Canada confirms that the annual rate decreased to 1.2% for the end of 2008 which is a low not experienced since the beginning of 2007.
Month over month November '08 to December '08 prices were 0.7 per cent lower.
Even with these amazing figures, Canada's inflation rate comes in at about 1% above that of the U.S.A. but our weaker dollar and good wage gains by those keeping their jobs makes deflation less of a risk.
The Bank of Canada recently forecast inflation will likely drop below zero in the 2nd quarter once food prices react to the drops in energy and commodity prices. The Bank's "core inflation rate" which excludes energy and many food products due to their volatility remained at 2.4% last month.
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